They've Got Something to Talk About

2013 Annual Report

They’ve Got Something to Talk About Table of contents VISION: “To be a world-class bank anchored on service excellence in our 2-3 About EastWest Bank chosen markets.” 4-5 How We Did BRAND PILLARS: Conversation with the Chairman • Insightful expertise directed 6-9 towards your priorities The President Speaks • We are dedicated to making 10-13 banking easier • Our entrepreneurial spirit to realize best potential 14-23 Operational Highlights

24-29 Risk Management 30-33 Corporate Governance

THEY’VE GOT SOMETHING TO TALK ABOUT.

From our conspicuous magenta and green stores to our innovative 34 - 37 Board of Directors products and services. In our 2013 Annual Report, we go beyond the 38 - 39 Senior Management numbers and let the numbers speak for our performance, as well as the steady patronage that we continue to enjoy from our clients. 40 List of Senior Ofﬁ cers 41 EastWest Rural Bank 42 - 43 Products and Services List 44 - 56 Store Directory 57 Audited Financial Statements Shareholder Information

2 2013 ANNUAL REPORT They’ve Got Something to Talk About 1 TheTh bank is focused on the consumer segments and the corporate middle-market.m It is the ﬁ fth-biggest credit card issuer and one of About EastWest Bank theth largest auto credit providers in the country. EEastast WWestest BBankinganking CCorporationorporation ((PSE:PSE: EEW)W) iiss tthehe bankingbanking armarm ofof FilinvestFilinvest DDevelopmentevelopment CorporationCorporation ((PSE:PSE: FFDC),DC), oonene AAss ooff eend-2013,nd-2013, EastWestEastWest hashas a ttotalotal ooff 334747 bbranchranch stores,stores, ooff tthehe country’scountry’s leadingleading conglomerates,conglomerates, withwith iincludingncluding thosethose ofof itsits ruralrural bankingbanking bbusinessusiness interestinterest inin banking,banking, realreal estate,estate, aarm,rm, EEastWestastWest RRuralural BBank.ank. hhospitality/tourism,ospitality/tourism, ppowerower ggenerationeneration aandnd ssugar.ugar.

TThehe bankbank offersoffers productsproducts aandnd servicesservices throughthrough ttraditionalraditional aandnd aalternativelternative ddeliveryelivery cchannelshannels forfor thethe variousvarious ﬁ nnancialancial needsneeds ofof itsits cclients.lients. EastWest Bank Milestones JJulyuly AAugustugust MMarcharch AAugustugust NNovemberovember FFebruaryebruary MMayay JJuneune JJulyuly NNovemberovember JJulyuly SSeptembereptember OOctoberctober NNovemberovember 11994994 22003003 22009009 22011011 22011011 22012012 22012012 22012012 22012012 22012012 22013013 22013013 22013013 22013013

AAcquiredcquired AAcquiredcquired EEcologycology GGreenreen BBankank SSavingsavings ooff CCaraga,araga, BBank,ank, IInc.nc. IInc.nc. RReceivedeceived BestBest CCommercialommercial BBankank iinn tthehe TTravelravel MMoney,oney, PPhilippineshilippines SSoutheastoutheast Asia’sAsia’s RReceivedeceived AAwardward ffromrom tthehe RReceivedeceived uuniversalniversal fi rrstst mmulti-currencyulti-currency ccommercialommercial GGloballobal BBankinganking AAcquiredcquired pprepaidrepaid cardcard bbankinganking RReceivedeceived tthehe BSPBSP bbankinganking & FFinanceinance FFinmaninman RRuralural llicenseicense RRevieweview CCertiertifi ccateate ooff AAuthorityuthority llicenseicense AAcquiredcquired AAIGIG BBank,ank, IInc.nc. aass a uuniversalniversal bankbank ffromrom tthehe PPhilAmhilAm SSavingsavings BBangkoangko BBankank SSentralentral nngg PPilipinasilipinas NNominatedominated ((BSP)BSP) iinn tthehe AsianAsian EEarnedarned fi vvee BBusinessusiness HHeldeld aann iinitialnitial ppublicublic ddistinctionsistinctions fromfrom LLeaderseaders oofferingffering ((IPO),IPO), tthehe fi rstrst LListedisted oonn tthehe MorganMorgan tthehe 20122012 VisaVisa AAwardswards ((ABLA)ABLA) bbyy a PPhilippinehilippine bankbank inin SStanleytanley CapitalCapital IInternationalnternational PPerformanceerformance AwardsAwards eeightight yyearsears GGloballobal SSmallmall CCapap IIndex,ndex, wwhichhich mmeasureseasures tthehe eequityquity pperformanceerformance ofof smallsmall RRankedanked aamongmong tthehe world’sworld’s toptop 1,0001,000 ccapitalizedapitalized sstockstocks iinn bbanksanks bbyy LLondon-basedondon-based publication,publication, ddevelopedeveloped aandnd emergingemerging TThehe BankerBanker mmarketsarkets

2 220130 1 3 AANNUALN N U A L RREPORTE P O R T TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 3 How We Did

IInn 2013,2013, EastWestEastWest grewgrew iitsts nnetet proprofi t byby 113.2%3.2% ttoo ttoo Php48.9Php48.9 billion,billion, asas creditcredit cards,cards, aauto,uto, mmortgageortgage ttoo PPhp142.3hp142.3 bbillionillion ffromrom tthehe 20122012 level.level. ItsIts PPhp2.1hp2.1 bbillionillion ffromrom tthehe year-agoyear-ago level.level. aandnd personalpersonal loansloans businessesbusinesses allall expandedexpanded atat a CCapitalapital AAdequacydequacy RRatioatio ((CAR)CAR) aandnd TierTier 1 RatioRatio ddouble-digitouble-digit pacepace fromfrom thethe previousprevious yyear.ear. CCorporateorporate sstoodtood atat 17.0%17.0% aandnd 13.8%,13.8%, respectively,respectively, aass ooff EEastWestastWest recordedrecorded aann iindustry-leadingndustry-leading NetNet InterestInterest llending,ending, whichwhich largelylargely ffocusedocused onon thethe middlemiddle marketmarket eend-2013.nd-2013. MMarginargin ooff 88.4%.4% - mmoreore tthanhan ddoubleouble tthehe iindustryndustry ssegment,egment, alsoalso jumpedjumped 335.1%5.1% ttoo eendnd thethe yearyear atat aaverageverage - tthathat rresultedesulted iinn a nnetet iinterestnterest iincomencome PPhp46.7hp46.7 billion.billion. PPROFITABILITY.ROFITABILITY. TThehe Bank’sBank’s netnet proprofi t iincreasencrease ofof 37.9%37.9% year-on-year,year-on-year, asas itit reapedreaped tthehe ttranslatedranslated toto a returnreturn oonn eequityquity ((ROE)ROE) ooff 111.1%1.1% bbeneenefi ttss ooff ffocusingocusing oonn tthehe cconsumeronsumer andand middle-middle- DDEPOSITS.EPOSITS. DDepositseposits iincreasedncreased byby 21.9%21.9% toto aandnd returnreturn oonn aassetsssets (ROA)(ROA) ofof 1.6%.1.6%. ThisThis mmarketarket ssegmentsegments aandnd generatinggenerating low-costlow-cost fundsfunds fromfrom PPhp111.2hp111.2 billion,billion, butbut interestinterest eexpensexpense wwentent ddownown wwasas despitedespite thethe costcost ofof itsits aggressiveaggressive storestore a wwiderider sstoretore nnetwork.etwork. bbyy 15.3%.15.3%. TThehe expansionexpansion inin storestore nnetworketwork ffurtherurther eexpansion.xpansion. iimprovedmproved tthehe BBank’sank’s ffundingunding mix,mix, withwith low-costlow-cost ddepositseposits growinggrowing bbyy 227.9%.7.9%. NNETWORKETWORK RREACH.EACH. EEastWestastWest oopenedpened a LLOANSOANS. TThehe BankBank recordedrecorded aabove-industrybove-industry lloanoan ttotalotal ooff 117878 nnewew storesstores iinn tthehe lastlast twotwo years,years, ggrowthrowth wwhichhich ggrewrew bbyy 332.1%2.1% ttoo PPhp95.6hp95.6 bbillion.illion. TThishis wwhichhich bbringsrings tthehe consolidatedconsolidated storestore nnetworketwork ofof wwasas ddrivenriven bbyy cconsumeronsumer loans,loans, whichwhich roserose 29.4%29.4% SSIZEIZE AANDND SSTRENGTH.TRENGTH. TTotalotal aassetsssets roserose byby 17.2%17.2% EEastWestastWest UUnibanknibank aandnd EastWestEastWest RuralRural BankBank toto 334747 aass ooff eend-2013.nd-2013.

Total Resources in billion Php Total Deposits in billion Php Net Income in billion Php Total Capital in billion Php

142.3 111.2 2.1 19.4 121.4 91.2 1.8 17.3 1.8 1.7 11.2 96.0 76.7 66.5 9.8 83.8 59.8 75.0 8.1

0.6

Total Loans - Net in billion Php Total No. of Stores 94.0 347

292 71.2

168 48.1 40.3 33.1 113 89

4 2013 ANNUAL REPORT They’ve Got Something to Talk About 5 2013 was generally marked by market volatility. Why is the Bank focusing on the consumer and How does EastWest Bank continue to pull off an middle-market? impressive performance amid these challenges? We believe focusing on the consumer and middle- We have managed to sustain our aggressive growth market segments is an appropriate strategy for the and outstanding performance in the last fi ve years domestic market. through painstaking and deliberate actions. Conversation It is worth mentioning that our country is the 12th First, we are backed by a strong Senior Leadership biggest nation in terms of population. There is Team — one that can inspire and steer the entire strength in numbers of nearly 100 million Filipinos. organization towards achieving our “Big Dream.” Our median age is only 22 years with nearly half of the population still in school. We have a growing middle- with the Chairman We also invested in progressive IT systems, including class and the number of bankable Filipinos will likely those for our credit cards business, treasury, fi nance, grow faster than ever before. We must be ready to take advantage of these big opportunities. risk management, call center operations, and collections, among others. In 2013, the Philippines posted the highest GDP growth in Asia, second to China. This was largely f EastWest Bank Chairman Jonathan T. Gotianun In addition, we have intensifi ed our store network walks with a steady and confi dent stride, it is for a driven by strong domestic consumption, which now expansion, people development, as well as our sales accounts for one-third of our GDP. The sustained Igood reason. EastWest Bank, one of the fastest- and marketing efforts. And yet, we still consider volumes of OFW remittances and BPO revenues have growing banks in the country, continues to deliver strong all these as “work in progress.” We need to deliver been fueling this growth. results, even posting above-industry average loan excellent customer service and to achieve this does growth and the highest margins since it rolled out its not happen overnight. All these translate to one thing for us: a potentially expansion plans fi ve years ago. huge market to serve for the coming years. We must be ready to take advantage to serve this young How was EastWest able to take advantage of population. If we grow as fast as the market we serve, In this interview, Mr. Gotianun, or Atan as he is fondly business opportunities that came after its successful we can help more Filipinos realize their dreams. called by his peers, whose family has been in the initial public offering (IPO) in 2012? banking business for a long time, shares his thoughts on the opportunities and challenges ahead, and achieving It was the fi rst IPO by a Philippine bank in eight years. You talked about having one ‘Big Dream’ for EastWest Bank. What is this ‘Big Dream’? the Bank’s aspiration of becoming a world-class bank. The IPO enabled us to fl ex our fi nancial muscle and embark on what may be considered as the most aggressive store expansion program in Philippine Our Big Dream is for EastWest — not only to be banking history. We have 347 branch stores, along among the top 5 banks in the country — but also to with those of EastWest Rural Bank (EWRB), as of end be the best fi nancial institution in the Philippines. 2013. This was more than twice our store network EastWest must be a bank known for several things: when we started two years ago. We expect to have at having an excellent brand of customer service, relevant least 400 stores before the end of 2014. products that meet the needs of customers, having the most engaged and loyal customers and employees. We also took advantage of acquisition opportunities We want to become a world-class bank. We want to particularly the acquisition of AIG PhilAm Savings be highly regarded by our customers and respected by Bank in 2009, Green Bank in 2011 and Finman Rural our peers. Bank in 2012, which have delivered signifi cant returns on our initial investments.

6 20132 0 1 3 ANNUALA N N U A L REPORTR E P O R T They’ve Got Something to Talk About 7 Necessarily, such institution must be consistently high performing in every aspect, or else it cannot “We want to become continue to grow and sustain itself. With our continued investment in people and in what our businesses need, a world-class bank. it won’t be too hard to make this happen. Our Big Dream is for We want to be We are not the biggest but we are not a small bank EastWest — not only highly regarded by anymore. We are now big, and yet with plenty of to be among the top 5 room to grow because we are young. our customers and banks in the country — respected by our peers.” How are you preparing to become a world-class but also to be the best bank? ﬁ nancial institution in the JJONATHANONATHAN TT.. GGOTIANUNOTIANUN EastWest articulated its vision through its tagline: CChairmanhairman “Your Dream Our Focus.” Fulﬁ lling this is key to our Philippines. future success.

To become a “world-class bank anchored on service excellence in our chosen markets,” we must ﬁ rst EastWest must be a bank understand the true meaning of ‘excellence’ from our customers’ perspective. How well we execute and known for several things: deliver on our promises to them will differentiate us from our competitors. having an excellent

We also need the buy-in of our various stakeholders. brand of customer

• We need to engage our customers so that they will service, relevant products be willing to do more business with us, refer us and encourage others to also bank with us. Word of that meet the needs mouth is still the most reliable sales and marketing medium. of customers, having

• We need to engage our people from every part of the most engaged and the organization so that they will be focused in loyal customers and serving the needs of our customers and actively work together as one team to make our customers’ employees. dreams happen.

• We need to engage our shareholders so that they will continue to believe in our vision and get their unwavering support.

We have been given a unique opportunity to make a difference, not only for our customers, but also for our country. As EastWest Bank attains its vision to become a world-class bank, it will spawn a virtuous cycle of progress among Philippine banks. Our competitors will respond and this will redound positively for the good of the general banking public. Ultimately, everyone wins.

8 2013 ANNUAL REPORT They’ve GGoto t SSomethingo m e t h i n g tot o TalkT a l k AboutA b o u t 9 How did the Bank do in 2013? Did everything fall into place as you planned?

We are getting there. We think we did quite well given We believe we did better than what we initially the tough operating environment in 2013. Interest thought. The extent by which costs outstripped spreads hit an all-time low. We also had to contend the growth of core revenues turned out lesser than with our store expansion, where the costs are upfront expected. and expected revenues come much later. Fortunately, we did rather well on fi nancial markets In 2013, our operating expenses went up by 39.8% trading. Our cost-to-income ratio even shrank to to Php10.9 billion while total revenues, rose by 59.2% from 64.0% in the same period in 2012. We only 34.6% to Php13.16 billion. The challenge is expect though that the costs of expansion will be most to accelerate our revenue growth from the store felt in 2014 when the cost impact of the additional The President expansion. In spite of these, EastWest ended up hires and store infrastructure will be fully felt. As our among the banks with one of the best percentage new stores become more mature, and as we complete increase in book value from operating results, and you the major expansion components, the cost increases can see this in our fi nancial performance: should stabilize. As we keep the growth momentum of our consumer and corporate loans, and start to see Speaks • In terms of profi tability: Our net income was up the new stores generate more businesses, we think 13.2% to Php2.06 billion on the back of a 34.6% the numbers will start to reverse and revenues will increase in total revenues to Php13.16 billion grow faster than costs. We should see this in 2015 in and a 17.2% gain in assets to Php142.30 billion. a more meaningful manner. here has never been a less exciting and This translates to a return on equity of 11.1% and less eventful year at EastWest Bank since a return on assets of 1.6%. In terms of increase in book value per share we should end up among So is 2013 a walk in the park for you? TAntonio C. Moncupa, Jr. became President the better-performing banks. This took into and CEO in 2007. The intensity seemed to account mark-to-market losses that are not No, defi nitely not. While 2013 was a tough year, our have struck a high note in 2013, when the Bank refl ected in the net income but are treated as a strategic focus on consumer loans helped us mitigate the tightening margins — which we believe was the deduction in the equity of banks. gained market attention for its rapid growth, lowest in banking history. The Lady Luck of interest capital buildup, aggressive store expansion and rates also continued to smile our way, as it had the • What mainly fueled our growth: Our core deposits past few years. Our reading on interest rates turned product innovation. and loans did pretty well. Loans increased 32.1% out well allowing the Bank to register good trading to Php95.64 billion. Business loans grew by profi ts. But mostly, EWbankers really worked doubly In this interview, Mr. Moncupa sheds light on 35.1% while consumer loans increased by 29.4%. hard to maintain our profi t levels while dealing with Our consumer portfolios account for 51.2% of how EastWest Bank has managed to stay in the the margin squeeze and the costs of expansion. spotlight amid the fever-pitch competition, the total loans which mitigated the low interest rate environment. Our market share rose by a paper-thin margins, the tightening regulatory These efforts allowed us to retain our industry-leading notch; we are now the fi fth-largest in credit card Net Interest Margin, which stood at 8.4% in 2013 – noose on banks, and the constant pressure to receivables. Our other consumer loan segments improve operational effi ciency. He also reveals more than double the industry average. The breakneck – be it personal loans, auto, and mortgages – all speed by which we open new stores in the last two his plan, once deemed ambitious for a relatively posted high double-digit growth. years may be deemed as “aggressive” by Philippine new player, to gain a foothold in almost the banking standards, but we thought our fundamental entire archipelago and stay true to the Bank’s • Our focused strategy: We are a universal bank, strengths would carry us through the initial pain of with a clear retail bias, catering to mid-sized name: from East to West. this expansion. So far, it is. And things are turning out businesses, and the consumer. This is why we better than we thought. needed to expand our distribution reach. And the results are showing. Just look at our total deposits: we generated Php111.18 billion, higher by 21.9%, Would you say that EastWest is now a more relevant as a result of our expanded network. Transactional and serious player? low-cost deposits (CASA) grew by 27.9% to Php64.43 billion. We will acquire the breadth and That is a key agenda. We are moving towards depth of a bank that is truly national in scale once becoming one. We have the infrastructure. We have we complete our store expansion program in the capability to raise capital. It has been more than a 2014. year since our Initial Public Offering (IPO). The success

10 20132 0 1 3 AANNUALN N U A L RREPORTE P O R T They’ve Got Something to Talk About 11 of our IPO not only gave us fresh equity to fund our store expansion program, but also sent a signal to the market that EastWest is a serious contender to be a While 2013 was a tough “We are as certain as top-tier bank in the country. But more than all these, I think what is most important is, EWbankers are year, our strategic focus ever about EastWest’s gaining more confi dence that indeed, EW could and own business and future will be a more relevant player in the Philippine banking on consumer loans helped scene. prospects. We know we have us mitigate the tightening It helps, too, that we also had some milestones in challenges to meet. But we 2013. EastWest landed on the list of the world’s top margins — which we believe 1,000 banks published by The Banker, a London- also know our fundamental based magazine providing global fi nancial intelligence. was the lowest in banking It also ended up among the 62 semifi nalists in strengths. As one of the CNBC’s Asian Business Leaders Awards. More than history. leadership recognition, I think it is more an institutional fastest-growing banks in achievement. I understand that the major criterion to qualify for the recognition is the performance of the country, we have the the companies in the last few years. We think being momentum of the last fi ve among the 62 top-performing companies in Asia speaks a lot about EWbankers. years to carry us through.” In 2014, we expect to go live with our new core banking solution: Temenos’ T24, which is among the How is EastWest preparing for future growth? leading core banking solutions in the world today. We AANTONIONTONIO C.C. MONCUPA,MONCUPA, JR.JR. will also have a new internet banking platform. This PPresidentresident aandnd CEOCEO We had launched the growth program and I don’t think should result to improved customer experience. we can turn back nor should we. We will pause to consolidate but generally, it is full steam ahead. About Of course, technology, no matter how powerful, can 4 or 5 years ago, the board correctly expected that only do so much. In the end, banking is still a people the Philippine economy will expand at a rapid pace. It business. This is why we continue to develop our now believes the economy has the momentum that people – now 4,754 strong and soon to pass the will be sustained in the coming years. 5,000 mark – to meet the requirements of our future growth. On top of our agenda is the evolution of a We thought we were lucky in the timing of our service culture. Our EastWest Academy continues its expansion. We were ahead than most of our efforts to narrow the gap between where we are and competitors. Together with EastWest Rural Bank, where we want to be insofar as giving value to our we should have a total store network of more than customers are concerned. 400 upon the completion of our expansion program in 2014. Once we are done putting these stores up, EastWest will have the fi fth-largest store network in How optimistic are you about the prospects for the restricted areas in Metro Manila. We are well- 2014? positioned for the onslaught of more competition once the Bangko Sentral ng Pilipinas has fully liberalized We do not expect 2014 to be easy. While we think the branch licensing by mid-2014. global economy will be in better shape, this will bring its own challenges. Monetary policy, both in the major This year, we should complete the major expansion economies and locally, could shift. Competition will gett and will focus on consolidating what we have built. even tougher. This means concentrating on training our people, further improving risk management and governance, In spite of this unsettled backdrop, we are as certain fi ne-tuning our physical and information technology as ever about EastWest’s own business and future infrastructure, and focusing on activities that will prospects. We know we have challenges to meet. But enhance our customers’ experience with the Bank. we also know our fundamental strengths. As one of As we consolidate, we also intend to raise as much as the fastest-growing banks in the country, we have the Php10 billion in non-dilutive Preferred Shares and Tier momentum of the last fi ve years to carry us through. 2 notes to support the Bank’s expected growth amid We will ride on the growing confi dence of our people too stiffer capital adequacy requirements under Basel 3. face up to competition.

12 2013 ANNUAL REPORTT TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 13 Operational Highlights Store Sales Making our 117878 YYou’veou’ve ggotot mmoreore rreasonseasons presence felt sstorestores oopenedpened inin tthehe lastlast ttoo ttalkalk aboutabout EastWestEastWest 013 was all about surpassing our customers’ ttwowo yyearsears 2expectations. 334747 During the year, we opened 55 additional stores, on In 2013, we managed to break top of the 123 new stores the previous year. As of end- into the global arena and landed 2013, EastWest has 347 consolidated store network with EastWest Rural Bank. The Bank also installed ttotalotal on international investors’ radar 284 ATMs in the last two years, with 166 of those in sstoretore 2013, which brings its ATM network to 427. screens. The bank is now listed nnetworketwork on the Morgan Stanley Capital Why does size matter? Because it allows us to reach 228484 International (MSCI) Global Small out to our customers, wherever they are. Because size Cap Indices List because of our stock gives them easy and instant access to their money, AATMsTMs anywhere they go, anytime they need it. performance. We have also been oopenedpened inin tthehe lastlast ranked among the world’s top 1,000 This pushes us at EastWest to work harder so we can offer more new products. In 2013, we launched ttwowo yyearsears banks by London-based publication, EastWest Travel Money, the ﬁ rst multi-currency The Banker. prepaid card in Southeast Asia. With this, our SStartedtarted toto customers can carry up to six currencies – US Dollar, uupgradepgrade mportant as earning global attention is the Euro, British Pound, Hong Kong Dollar, Australian consistent excellent delivery of the products and Dollar and Japanese Yen – in a single card to make ttoo a Iservices we offer in our 347 stores nationwide, cashless purchases all over the world and access funds ppowerfulowerful including those of EastWest Rural Bank. from any ATM with the Visa Plus logo worldwide. ccoreore

Today and in the coming years, we will strive to give The Bank continues to gain stride in its cash bbankinganking our customers more reasons to bank with EastWest management business by adding new products and ssystemystem Bank. services to its suite of offerings. In 2013, we began offering BancNet e-Gov, an online facility which allows clients to conveniently ﬁ le and settle BIR, SSS, TTemenosemenos PhilHealth and Pag-IBIG payments.

During the year, we started upgrading to a powerful TT2424 core banking system called Temenos T24 to further RRegisteredegistered improve service quality and delivery. bbiggestiggest yyear-ear- By far the most technologically advanced banking oon-yearn-year debitdebit system in the world today, this 24-hour real-time ccardard ppurchaseurchase banking application will enable our customers to vvolumeolume experience world-class banking with EastWest. They can also expect to see more cutting-edge products ggrowthrowth tailor-ﬁ t to their needs.

14 220130 1 3 AANNUALN N U A L RREPORTE P O R T They’ve Got Something to Talk About 15 More fl exible Classic Transaction Number Growth in the Philippines Operational Highlights The robust economy spurred more consumers to and 2012 Best Performer in Visa Classic Payment avail of EastWest Personal Loan. Volume Growth in the Philippines, the second time we won the award since 2011. Consumer Lending EastWest Personal Loan addresses the consumer’s need for cash. Our loan portfolio grew by 57.6% In 2013, EastWest Credit Cards relaunched its female year-on-year, mainly as a result of a more intensifi ed card, the EastWest Dolce Vita Titanium MasterCard, Realizing your dreams cross-selling programs and sustained promotions which boasts of enhanced features and a range of that offered borrowers low rates, instant gratifi cation exclusive privileges especially designed to suit the and payment fl exibility. lifestyle of the modern woman. In addition, it also he Philippines emerged as the second market offered Dolce Vita Loves for shoppers, Dolce Vita where consumer confi dence was highest, More swipes Cares for health and wellness-related purchases, Taccording to the latest Consumer Confi dence As the Philippine economy becomes more robust, and Dolce Vita for beauty and relaxation treats. Through the Dolce Vita Charms Program, cardholders Index of Nielsen global research as of the fourth consumer confi dence is expected to grow and prompt can redeem Charms Vouchers that may be used to quarter 2013. higher spending. With many of our customers purchase merchandise or exchange for gift certifi cates shopping and swiping their credit cards, we were Filipinos ranked among the most optimistic consumers at partner merchants. able to improve our industry ranking by a notch to in Southeast Asia, according to a global survey fi fth largest in terms of credit cards receivables in on consumer confi dence and spending intentions To continue making good things happen for our 2013. by Nielsen research group. This refl ects the rising customers, we teamed up with more partner affl uence in the country, the growth of a strong middle 227%7% merchants and offered cardholders more shopping Total receivables up by 21% from 2012 levels, three class, and robust economic outlook, which inspired options, installment programs and privileges so they times faster than the Philippine credit card industry’s more customers to make their biggest fi nancial moves. will have more reasons to use their EastWest Credit pace of 6.2%. In addition, full-year 2013 billings Cards. iincreasencrease inin grew by 24% from the previous year. More driven In 2013, more Filipinos realized their dreams of buying AAutouto LoanLoan Recognizing our growing market share, Visa a vehicle. Through the intensifi ed efforts of our stores, pportfolioortfolio Philippines awarded EastWest the following: 2012 sales offi cers and dealers, and the improved service Best Performer in Visa Classic Cards-in-Force Growth 55thth effi ciency in processing loan applications, EastWest’s in the Philippines, 2012 Best Performer in Visa Auto Loans portfolio grew by 27% compared to the year-ago level. Filipinos ranked llargestargest inin We were also able to sustain our close partnership with among the most ccreditredit cardscards leading automakers and dealers through appreciation optimistic consumers in rreceivableseceivables events, fast approval and a host of other 221%1% programs for dealers. Southeast Asia, according More sheltered to a global survey on More Filipinos were also able to fulfi ll their dream to own a home, fund home or offi ce renovations, and consumer confi dence and ggrowthrowth iinn expand their business premises. During the year, ccreditredit cardscards our Mortgage Loan portfolio grew by 16% as more spending intentions by rreceivableseceivables customers got accessible credit, more affordable fi nancing options, fl exible terms, and rode on the Nielsen research group. This continuous record-low interest rates in 2013. refl ects the rising affl uence Higher sales production from stores combined with in the country, the growth of 224%4% lower operating cost (a result of having a leaner manpower and a more targeted marketing program), a strong middle class, and greater effi ciency, and faster turnaround boosted our mortgage loan volume. In 2013, we also added DMCI robust economic outlook, iincreasencrease inin Homes to our roster of partner developers, giving our ccreditredit cardcard customers more options when buying a home. More which inspired more bbillingsillings stores in more locations also gave potential borrowers access to more favorable prices. Healthy competition customers to make their also led to the steady growth of our mortgage loan biggest fi nancial moves. business.

16 220130 1 3 AANNUALN N U A L RREPORTE P O R T TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 17 OOperationalperational Highlights

114%4%

IIncreasencrease inin ttradingrading rrevenuesevenues

Corporate Banking Treasury and Trust Anticipating that the United States, the world’s biggest economy, will bounce back and interest rates will start CCorporateorporate to normalize, we diversifi ed our list of international Making companies grow lloansoans upup Making funds grow investment opportunities in 2013. Meeting clients’ demand for longer-term investment instruments, we hile 2013 offered many opportunities, it hile more banking players jostled for competition offered Long-Term Negotiable Certifi cates of Deposits also served as a litmus test for many banks’ in the consumer lending business, we continued (LTNCDs) in 2013 and will continue to offer this treasury business because of global market to step up our lending to mid-sized companies and W product as part of our asset and liability management. W volatility. EastWest weathered this volatility and institutional customers. sustained its net income from foreign exchange and 2013 also proved to be a challenging year because of fi xed income trading, which rose 14% from year-ago In 2013, our corporate loans, largely in the middle-market 335%5% the phase out of the BSP’s Special Deposit Account levels. segment, increased by 35% from the 2012 level. (SDA) facility availed by many investors through the banks’ trust departments. While this reduced our Recognizing that the Federal Reserve’s Quantitative Behind these numbers were initiatives that have gained assets under management, we were able to quadruple Easing move was temporary, we prudently pared down traction in 2013. New lending centers were set up, allowing 333%3% our assets held in unit investment trust funds (UITF). on the whole the Bank’s interest rate risk, enabling small enterprises to avail of credit right at their locality. More Our largest UITF, the Peso Intermediate-Term Bond us to protect our early gains generated during the fi rst corporate clientele were also introduced to our wide array Fund, delivered the highest return in its category in the half of the year. of cash management products and services that help our industry for the second year in a row. customers manage their operating funds. IIncreasencrease While not totally immune to these cyclical market iinn cclientlient Due to customer demand and positive feedback, we developments, we managed to deepen our access We continued to run internal programs such as the Account continued to offer wealth management seminars. This ddatabaseatabase to ready liquidity and improve our investment outlets Offi cers Development Program (AODP) for competence allowed us to reach out to clients around the country globally. In addition, we also maximized our expanding development. The AODP is considered one of our competitive and open new inroads in the workplace where we can balance sheet to prudently grow our trading positions strategies to effectively compete with other players in the convert employees of our client companies from savers when warranted. industry. to investors.

18 2013 ANNUAL REPORT They’ve Got Something to Talk About 19 We also launched an internal service management Furthermore, the members of our Board of Directors Operational Highlights tool for handling service requests and reporting of receive compensation based on the amount approved incidents. It reduced the cost of printing paper for by the Board Compensation Committee. However, approval and ensured acknowledgement and tracking their total yearly compensation shall not exceed ten of requests. percent of the net income before tax of EastWest Support Initiatives during the preceding year. Also, the members of our Board of Directors and the Corporate Secretary receive Behind the numbers EEnhancednhanced People power our bank per diems for every attendance in Board or Committee AATMTM ssystemystem As competition in the local banking industry intensiﬁ es, meetings. so does the human resource competition for the best talents. We aim to be an employer of choice. As ehind a successful bank is a cadre of men such, we launched several initiatives to build a strong The EastWest Academy and women who work hard to make things IImprovedmproved pipeline of talent at all levels in the organization. As an organization, EastWest believes in providing a Bhappen for our customers and shareholders. iinternalnternal EastWest Bank recognizes the fact that having the learning environment which gives our people all the In 2013, we made signiﬁ cant headways in giving our ccommunicationsommunications right and fully engaged people is a critical step in opportunities for them to accumulate knowledge, customers and our shareholders more reasons to achieving the bank’s vision of being a “world class bank bank with EastWest. tthroughhrough anchored on service excellence in our chosen markets.” eenhancednhanced

Wired and wonderful iintranetntranet Our vision of becoming a world-class bank anchored Employee Development and Incentive Structure on service excellence in our chosen markets also We follow a remuneration policy that enables us to rests on our ability to roll out products and services attract, motivate and retain quality employees. Our and process transactions seamlessly. FFasteraster compensation programs are designed to support our ccustomerustomer business strategy by rewarding behavior that delivers In 2013, we embarked on eight major IT initiatives to aacquisitioncquisition results against business goals. The programs drive pursue our vision. performance to meet the expectations of our internal and external stakeholders. First, we made a major initiative in our technology infrastructure by enhancing our ATM system. More LLaunchedaunched To attract, retain, and motivate our employees, we than enhancing our ATM performance, the system iissuessue aandnd reward them at a level that is competitive in the also allows us to create debit and prepaid card sserviceervice requestrequest products such as the EastWest Travel Money; and the banking industry. We ensure that our compensation EastWest Gift Card, enabling our customers to use a ttrackingracking ssystemystem package exceeds the minimum wages and beneﬁ ts card-based technology that functions better than gift provided by law. This includes guaranteed bonuses of certiﬁ cates. additional three months (inclusive of the mandated 13th month pay) and variable pay such as performance We also improved our Inward Remittance System, bonuses and other performance-based incentive which enables automated processing of incoming schemes through strong individual, team, or company funds, including the crediting of accounts. performance.

Our payroll backend systems were centralized with higher loan bookings. Auto dealers and account offi cers Merit increases are given to employees depending on the installation of a new Timekeeping/Payroll system can check on the status of applications with just a few the performance of the employee and that of the bank. which gave employees online access to their payslips. clicks on their keypad using this system. We also offer affordable loan rates for auto, housing and multi-purpose loans for our employees as part of Last year, we also launched our enhanced Intranet Given our aggressive store expansion, we saw the the benefi ts. website that serves as our primary portal of need to sustain our network resources. This called for knowledge within the Bank. The e-Channel gives upgrading of our network to increase our capacity to all employees access to documents, internal handle the volume of transactions being processed. Caring for the health and well being, as well as for the advertisements, corporate event photos and blogs safety and security of our employees, we provide HMO authored by EastWest bank president. As we introduce more products, the high volume of and group life insurance coverage. Employees’ fi nancial telephone inquiries to our Call Center needed to be security extends beyond retirement with a retirement And to make the processing and approval of loan handled effi ciently. To handle these huge transactions, benefi t plan that helps them reap the benefi ts of long applications faster, a Customer Acquisition System we increased the capacity and effi ciency of our PABX years of hard work and allows them to enjoy life after was introduced during the year. This resulted in system. their tenure with EastWest.

20 2013 ANNUAL REPORT They’ve Got Something to Talk About 21 Operational Highlights

continuously hone their skills and sharpen their Anti-Money Laundering Act and service quality-related competencies. EastWest Bank Academy’s mission programs increased signiﬁ cantly to 90% from 40%. is to provide the necessary training programs to all We plan to further strengthen our training programs to employees that will help them increase their level of provide employees with speciﬁ c track on the trainings awareness, improve their skills and develop the right they need to enhance their knowledge and skills and attitude in performing their jobs. advance their careers with EastWest Bank.

Below are some of the EastWest Academy’s new and banner programs in 2013: Abreast and ahead Time to Exceed We were able to look after the EastWest brand to This is a store network-wide campaign to increase ensure that all brand marks, internal and external awareness and enable store frontliners to imbibe and communications are aligned with EastWest standards. exhibit the EW Service Standards. It was facilitated This included the development of brand guidelines by Store Heads and utilized a blended approach of for EastWest Rural Bank, as well as the subsequent online, video, and facilitator-led discussions to teach revamp of the rural bank’s forms and merchandising. the required knowledge and skills. A total of 2,870 employees, security guards and utility personnel In 2013, we kept customers abreast on the products participated in the workshop. we launched as well as sales and promotions activities through advertising and publicity.

Service Managers Certifi cation Course Catering to the specifi c needs of various market Using a blended approach of online and face-to-face, segments, we launched the EastWest Travel Money; employees gave up their Christmas party celebration to help 51 store service managers acquired advanced technical the EastWest Gift Card; as well as new deposit the survivors, on top of their personal contributions and operational and leadership knowledge and skills. accounts that are highly affordable, namely the Basic Savings Account, Basic Checking Account; and the donations in-kind. Renminbi Savings Account for our customers with We launched new and IT Bootcamp businesses in China. The number of accounts for At your service IT Bootcamp is a fast-track development program with Basic Savings and Basic Checking continued to grow Customer service is key to ensuring that EastWest becomes innovative products that an extensive curriculum that equipped candidates with at a monthly average of 32% and 36%, respectively, a formidable player in the industry. To continue gaining our cater to the specifi c the necessary knowledge and skills needed to become until the end of the year. The EastWest Debit Card customers’ trust and confi dence, we established Service an effective IT offi cer in one year. Twelve out of 21 also garnered citations from Visa Philippines, namely Level Agreements among our business units to ensure needs of various candidates became full-fl edged offi cers whereas the the 2012 Best Performer in Visa Debit Transaction quality and timely service delivery. remaining nine were promoted on the fi rst half of the Number Growth and Visa Debit Cards in Force Growth. consumer and middle- training. In 2013, we implemented several programs on service We also embarked on fi nancial literacy initiatives to quality enhancements and monitoring such as Mystery market segments. educate our various customers on money matters. This Caller and Mystery Shopper to strengthen the drive for Core Banking Transformation/T24 included the publication of weekly columns in a major everyone in the organization to work towards service A bankwide simulation training for T24 was developed broadsheet which tackled topics based on relevant excellence. to go live in 2014. customer insights derived from the Bank’s frontliners and customer research studies. In partnership with Aside from ensuring quality customer service, EastWest’s the Bank Marketing Association of the Philippines Customer Service Division also made immense contributions Strengthened Academy portal usage (BMAP), we also conducted eight classroom sessions to support our marketing campaigns, store network The dedicated Intranet portal allows everyone in at the Mariners’ Polytechnic Training Center to raise expansion, and subsequent increase in our customer base. the organization to access information relating to all fi nancial literacy among Filipino seafarers. Initiatives through Outbound Telemarketing such as Balance training activities. In 2013, there were 15 additional Transfer and Insta-Cash pushed up sales by 26% year-on- courses that were published in the Academy portal. In solidarity with the nation, we also launched a year. The Inbound Contact Center, meanwhile, also helped The number of employees who accessed the portal fundraising drive for the communities affected by generate increased sales revenues, as well as improved to take the mandated courses such as those on the super typhoon Yolanda in Eastern Visayas. Our productivity and service effi ciency.

22 2013 ANNUAL REPORT They’ve Got Something to Talk About 23 Risk Management

Preserving our gains Behind every success, some say, is a two-sided coin: one whose face spells out opportunity, and the other, risk.

triking a balance between risk and opportunity • Identify and understand uncertainties and risks that is to look at both two sides of the same coin. may hamper us from achieving our goals; SAnd banks, to be successful, must master the • Set and communicate a framework that guides us management of the risk that lies at the heart of its in building a robust and proactive risk management business. culture; • Avoid surprises or undetermined potential losses; Risk is inherent in our business. That is why it and is important that it is recognized, quantiﬁ ed and • Make good use of our capital with optimal risk and managed. return decisions.

One of the main risks that we typically incur as a bank arises from extending credit to customers through our lending, investing and trading operations. Beyond credit risk, we are also exposed to a range of other risk types. Managing risk is a A structured approach Managing credit risk Managing risk takes a village. To instill a culture of Most of our resources go to lending, our bread-and- responsibility that is shared risk management, we need to adopt a structured butter business. This exposes us to the risk that borrowers – from large corporations to individual credit The tone from the top and disciplined approach that will allow us to align from the top and cascades cardholders – will not be able to pay their loans. Credit Managing risk is a responsibility that is shared from our strategy, processes, people, technology and risk managers work in partnership with all of our the top (Board of Directors) and cascades to every knowledge. We do this through an enterprise-wide to every employee in the business units to identify and sum up the exposures employee in the entire organization. risk management (ERM) framework that requires entire organization. integrating risk and capital management effectively across all our business lines. Like a well-managed orchestra, the Board holds across our organization. As lending businesses differ, we use various the baton; it sets the direction in the conduct of methodologies to measure credit risk. risk management at all levels within the Bank and Well-established governance processes were used its subsidiaries. Every employee embraces this risk that involves every member of our organization However, at the core of these varying methodologies, philosophy. taking responsibility for managing risk, supported by comprehensive reporting. Our Board performs is to assess the likelihood of default (i.e., non- repayment or non-collection of the loan payment) and Risk management is a critical part of our strategy. It a strong corporate oversight, senior executive the corresponding probable losses. Thus, we measure helps us: management proactively executes while independent credit risk by answering basically two questions: “What • Know our risk appetite and know how much risk risk management structures are put in place through is the likelihood of an event happening?” and “How we can tolerate that will enable us to achieve various governance units. much will the Bank lose if the event happens?” growth;

24 2013 ANNUAL REPORT They’ve Got Something to Talk About 25 RRiskisk Management

Through the Risk Management Committee (RMC), our In setting limits, we take into consideration factors Risk is inherent in our business. Board is responsible for establishing and overseeing such as market volatility, product liquidity, business compliance with credit risk policies of the Bank and trends and management experience. We maintain That is why it is important that that of the Bangko Sentral ng Pilipinas. An example different levels of limits and these serve as the fence of what is being monitored is credit risk concentrations that corrals the potential loss we face. The Treasury it is recognized, quantifi ed and so that the Bank is protected against over exposure to Group is responsible for adhering to these limits. We a single borrower and/or industry. report breaches in a timely manner to the President, managed. Treasurer, and Chief Risk Offi cer. It is also important for the Bank to ensure that measures such as monitoring and limiting credit concentration, evaluating collaterals and credit Managing liquidity risk enhancements, maintaining credit quality with the aid This risk is closely tied to all other risk areas as losses of risk ratings, and monitoring loan performance via incurred in credit, market or operational activities when the regular impairment testing process are in place. funds are no longer available to meet obligations, These controls help us offset or reduce the impact of primarily in the form of deposit withdrawals. This risk, any adverse instances or conditions on the Bank. We therefore, is not concentrated in specifi c units rather regularly monitor the Bank’s credit risk indicators and relegated to all Bank transactions and activities. report these to Management and the RMC. Though liquidity risk is a bank-wide risk, the center of EastWest’s liquidity risk management activities rests Managing market and interest rate risk within the Treasury Group. This centralized approach While the resources we set aside for investments, to funding and liquidity risk management enhances such as fi xed income instruments, foreign currencies, the Bank’s ability to monitor liquidity requirements, equities and derivatives, are relatively small compared maximizes access to funding sources, minimizes to lending, the possible large swings in the market borrowing costs and facilitates timely response may cause losses. Thus, we need to be vigilant in to liquidity events. The smooth orchestration of managing market risk, and this task begins with our managing fund movements is made possible with Treasury Group which identifi es and verifi es market EW’s embedded risk management culture of ensuring risks. Treasury’s practices are guided by Board- pertinent information are captured and acted upon on a approved product manuals it co-developed with the timely basis. RMD. These practices include, among other things, processes for measuring and managing market and Various tools are used to measure liquidity risk and credit risks related to investments Treasury deals with, gain an overall picture of the Bank’s liquidity state. operational controls, and approval procedures. Tools for risk measurement include: liquidity ratios, regulatory liquidity reserve ratios, and the Maximum There is no single measure that can truly refl ect all Cumulative Outfl ow (MCO), which plots the amount aspects of market risk. Thus we use various metrics, of prospective funding that the Bank shall require at both statistical and non-statistical, including Value-at- pre-specifi ed future dates under normal operating Risk (VaR) for the trading portfolio, Earnings-at-Risk environments. (EaR) for the banking portfolio, interest rate sensitivity analysis, and stress testing. These measures provide We consistently maintain liquidity reserve levels information on the Bank’s market risk exposure. They within the BSP-prescribed minimums. RMC regularly are summed up by line of business and by risk type, oversees the Bank’s liquidity state through its monthly and are used for monitoring limits, one-off approvals meets. In 2013, the Board, through the RMC, and tactical control. approved a more robust limits system for the MCO model, more robust as it is more attuned to the Bank’s Market risk is primarily controlled through a series practical and strategic liquidity management objectives of limits that refl ects our risk appetite, given the and initiatives. current market environment and business strategy.

26 2201320130 1 3 ANNUALA N N U A L REPORTR E P O R T TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 27 Risk Management

Managing operational risk likewise provides an opportunity to process owners to • Maintain suffi cient capital resources to meet Risk is inherent when we set out to compete, gain keep internal controls relevant and effective in view of minimum regulatory capital requirements in advantage, and fail to keep pace with the changing any changes in the operating environment. accordance with prevailing capital standards; fi nancial services marketplace. Operational risk is evident in each product and service we offer. • Maintain suffi cient capital resources to support the The Bank’s increasing Ensuring compliance Bank’s strategic growth plans, and economic capital It encompasses product development and delivery, We employ proactive mechanisms to manage requirements hinged on the Bank’s risk exposure; infrastructure and business operational processing, systems development, compliance risk or the risk to earnings or capital computing systems, complexity of products and arising from violations of, or non-conformance • Allocate capital to business lines to support the growth objectives are services, and the internal control environment. This with, laws, rules, regulations, prescribed practices, Bank’s strategic objectives in those business lines, risk is not specifi c to any unit, but is a risk that is internal policies and procedures or ethical standards. including optimizing returns; supported by its capital inherent in all units and in all individuals in the Bank. These measures are based on the philosophy of zero tolerance for deliberate non-compliance that may • Ensure the Bank holds capital in excess of minimum management framework Due to its wide scope, operational risk is often varied expose the Bank to fi nes, payment of damages, the requirements in order to achieve the desired capital and sometimes specifi c to the unit concerned. Thus, voiding of contracts, reputation, reduced franchise adequacy ratios set by management; and our Board approved an operational risk management value, limited business opportunities, reduced framework and limit structure tailored for each expansion potential, and lack of contract enforceability. • Ensure that the Bank sustains adequate capital business, operating, and governance unit. This buffer on top of the minimum required level to cover framework guides everyone in the Bank to manage Although our Compliance Division provides leadership for risk from potential stress events. operational risk by adopting a uniform and structured on complying with current and emerging regulatory methodology in identifying, measuring, controlling, developments, including money laundering, identifying In 2013, our capital ratios consistently remained above monitoring and reporting exposures; and manage and and managing confl icts of interest and mitigating the Basel II minimum requirements of 5% for Tier 1 (T1) maintain risk exposure of business and operating units reputational risk, our business and operating units ratio and 10% for Capital Adequacy Ratio (CAR). As of permanent, and macroeconomic conditions may within the Board-approved limits. The framework is are primarily responsible in ensuring consistent end-December 2013, our Common Equity Tier 1 (CET1) reverse. With these views of the future, the real likewise the basis of policy-making bodies and the and adequate compliance with applicable laws and ratio and CAR stand at 13.8% and 17.0%, respectively. measure of stability is the ability to reasonably RMD in reviewing and providing clearance to various regulations. Compliance Champions at the unit level With T1 capital closely approximating the Bank’s anticipate and withstand diffi culties that may happen operational policies and procedures in the Group to monitor the adherence to applicable governing rules CET1 capital, T1 ratio also stands at the same level. in the future. ensure its consistency with the framework and the and regulations of the Bank, as well as in our internal Consistent with our risk and capital management adequacy of prescribed internal controls that have a policies and standards. They assist management in philosophy, we commit to maintain prudent capital Active risk and capital management shall continue good balance of directive, preventive, and detective effectively managing the compliance risks faced by levels while delivering optimum shareholder value. to permeate and will further be enriched by the controls. their respective units through regular collaborations Bank. It is our fi rm belief that, for risk and capital with concerned units. From the Bank’s regular exercise of capital management to be effective, everyone must While we take risks to reap profi ts, taking operational assessment, we are already compliant with Basel III understand the practical benefi ts of managing risk does not automatically result to any returns. even prior to the prescribed implementation in 2014. risks and optimizing capital. With this focus, we Operational risk is more evident as a cost rather Managing capital This comes amid a backdrop of having the fastest store will be able to signifi cantly improve risk and capital than an opportunity and, as such, the Bank avoids Our capital management philosophy is to maximize expansion in the Philippines and a rapidly-growing management education across the Bank and operational risk unless the cost of mitigation is shareholder value through optimum use of capital balance sheet. operationalize risk-adjusted performance measures. greater than the expected operational loss. To do while maintaining prudent levels as safeguard This will foster a strong culture capable to steer us this successfully, we put in place a Risk and Control against risks while providing the fl exibility to seize As we continue to pursue our aggressive growth plans, towards building and protecting shareholder and Self-Assessment (RCSA) for the analysis of business opportunities as they may arise. The framework that we recognize the need to raise Basel III-compliant customer value underpinned by effective risk and activities and identifi cation of operational risks that is utilized integrates strategic and fi nancial planning, capital, not for compliance’s sake, but to support our capital management. could affect the achievement of business objectives. risk appetite and management, and performance business strategies and corresponding risk-taking. Due diligence in performing internal controls to measurement. It is designed to ensure adequate address these risks and control effectiveness is tested. capitalization for the Bank commensurate to its risk We shall issue Basel III-compliant capital to be This process is a proactive risk management process taking as prescribed and/or allowed by the Board and completed in 2014. The Bank also has the option that is a key component in determining the risk profi les by our regulators. to raise additional common equity to fund its future and understanding the residual risk of each unit, growth. However, we also recognize that market and overall operational risk profi le of the Bank. This The Bank’s capital management objectives are to: conditions continue to evolve, opportunities are not

28 2013 ANNUAL REPORT They’ve Got Something to Talk About 29 We have a Code of Ethics that ensures that all CCorporateorporate Governance our employees adhere to the highest standards of quality, honesty, transparency and accountability. As Going beyond compliance, we a commitment to integrity, we have a program called EthicsDirect that encourages our employees to report, foster a culture of partnership in good faith, to Senior Management any misconduct within their respective business units. EthicsDirect is a within our organization to program that protects in confi dence the identity of the employee who disclosed the suspected offense within ensure our long-term success the organization. and performance. We value the contribution of our employees in fostering a culture of good corporate governance. The Employee Relations Council, composed of representatives from various units, ensures that interests and concerns of personnel are heard and addressed. the Board shall elect among themselves a Chairman Going beyond compliance, we foster a culture of and a Vice-Chairman. partnership within our organization to ensure our long- term success and performance. The Bank held a total of 19 Board meetings during the year. Of these, 12 are regular Board meetings Anchored on strong from January to December 2013; six were Special Board of Directors Board Meetings on March 14, April 04, April 18, May The Board of Directors conducts its functions as a full 03, October 19 and December 6, 2013; and one Board and through its six committees. Board-approved Organizational meeting on April 19, 2013. corporate governance Corporate Governance policies are contained in the Manual on Corporate Governance which is premised on the Corporate Code of the Philippines, Securities Board Committees ““GoodGood governance”governance” isis a termterm thatthat hashas beenbeen aroundaround forfor Regulations Code, 2009 SEC Revised Code of Consistent with corporate governance best practices, Corporate Governance and relevant provisions from the Board has established Committees to assist it in yyears,ears, butbut hashas becomebecome a favoritefavorite corporatecorporate buzzwordbuzzword the Bangko Sentral ng Pilipinas Manual of Regulations discharging its responsibilities. Each Committee has aafterfter tthehe scandalscandal atat Enron,Enron, a ooncence high-high-fl yyinging UU.S..S. eenergynergy for Banks. These policies are made known to every a mandate outlining the authority delegated to it by member of the EastWest Bank organization. the Board. Minutes of the Committee meetings are ccolossusolossus thatthat turnedturned intointo a householdhousehold wordword forfor massivemassive available to all Directors and are included in the Board ccorporateorporate failurefailure inin 2001.2001. The Board’s primary mandate is to ensure the meeting documents. sustainable and successful continuation of business activities by providing strategic direction to Executive The Chairpersons of the Committees furnish reports ince then, many banks and fi nancial institutions, is to comply with rules and regulations or adopting best management. The Board comprises of nine Directors on the activities of their Committees at each especially those in the global arena, have started practice standards. We design measures that align the of whom the majority are non-executive. The Board meeting. Executives considered relevant for Susing “good corporate governance” as a mantra. goals of our shareholders and senior management with non-executive Directors which include the three the effective execution of the mandates of such As the term means different things to different that of our employees. independent directors have diverse skills, experience Committees attend the Committee meetings by organizations, not to mention to different actors within and backgrounds and are, in general, free from invitation. these organizations, manuals have been prescribed any business relationship that could hamper their Our governance process to defi ne corporate governance and how it is being objectivity or judgment on the business and activities The following Committees assist the Board in carrying Our Board conducts its functions through six embraced by an organization. of the Bank. out its role and responsibilities: committees: Executive, Corporate Governance and Compliance, Audit, Risk Management, Compensation All the non-executive Directors have unrestricted Executive Committee and Trust. Our philosophy and principles access to information, documents, records Chairman: Jonathan T. Gotianun (Chairman) At EastWest Bank, good corporate governance is not and property of the Company in fulfi lling their A Manual on Corporate Governance contains corporate just a mantra; it is a crucial cog in realizing our vision responsibilities as non-executive Directors. The Executive Committee is empowered to approve governance policies that have been approved by the and mission. By observing fairness, accountability and and/or implement any or all corporate acts within Board. This manual is based on the Corporate Code transparency, we can achieve growth and stability, as Board Election and Attendance the competence of the Board except those acts of the Philippines, Securities Regulations Code, well as enhance investor confi dence. The Board consists of six regular members and three expressly reserved by the Corporation Code for the 2009 SEC Revised Code of Corporate Governance Independent Directors. The members of the Board Board of Directors. The Committee also assumes the We aim to create and sustain value for our various and relevant provisions from the Bangko Sentral ng are elected annually by the stockholders and shall reviews and approval of bank-wide credit strategy, stakeholders. To achieve this, our Board of Directors, Pilipinas’ Manual of Regulations for Banks. Policies are each serve a term of one year until the election and profi le and performance. It approves the credit risk senior management and employees understand that made known to every member of the EastWest Bank qualifi cation of a new set of Directors. Furthermore, taking-activities of the Bank based on the established each of them has a part to play in the Bank, whether it organization.

30 20132 0 1 3 ANNUALA N N U A L REPORTR E P O R T They’ve Got Something to Talk About 31 CCorporateorporate Governance approving authorities and likewise reviews and RRiskisk MManagementanagement CCommitteeommittee endorses credit-granting activities. The Committee Chairman: Jose S. Sandejas meets weekly or as often as it may be necessary to (Independent Director) address all matters referred to it. The Risk Management Committee (RMC) assists the CCorporateorporate GGovernanceovernance aandnd CComplianceompliance CommitteeCommittee Board in managing the Bank’s risk-taking activities Chairman: Paul A. Aquino through policy institution and oversight. As defi ned (Independent Director) in the Bank’s Risk Management Charter, the RMC reviews and approves principles, policies, strategies, The Corporate Governance and Compliance Committee processes and control frameworks pertaining to risk leads the Bank in defi ning corporate governance management, as well as recommends to the Board policies and attaining best practices while overseeing any necessary modifi cations or amendments to the implementation of the Bank’s compliance these strategies and policies. Its functions include program, money laundering prevention program identifi cation and evaluation of the Bank’s risk and ensuring that regulatory compliance issues exposures, estimating its impact to the organization TTrustrust CommitteeCommittee such as: staffi ng and delineation of responsibility/ are resolved expeditiously. Added to its strategic Chairman: Jonathan T. Gotianun accountability; proactive development and governance role is the nomination function where it and assessing the magnitude, direction and (Chairman) implementation of strategies to cultivate revenue reviews and evaluates the qualifi cation of individuals distribution of risks across the Bank, which likewise streams and cost management; application and nominated to the Board as well as those nominated serves as one of the basis in determining the risk The Board of Directors is responsible for the proper monitoring of the proper performance benchmarks. to other positions requiring appointment by the tolerances that RMC recommends to the Board for administration and management of Trust and other The President, Trust Offi cer and three Directors Board. The Committee is responsible for the periodic approval. Periodically, the RMC updates the Board on fi duciary businesses. It may, however, delegate its comprise the Trust Committee. administration of performance evaluation of the Board the overall risk exposures and the effectiveness of its authority through its Trust Committee which shall and its committees. It conducts an annual self- risk management practices and processes. ensure that funds and properties held in Trust or in evaluation of its performance in accordance with the any fi duciary capacity shall be administered with the Attendance in Board criteria provided in the 2009 SEC Code of Corporate The Risk Management Committee comprises skill, care, prudence and diligence necessary under Meetings Governance and the Bangko Sentral ng Pilipinas four members of the Board where all are non- the circumstances then prevailing that a prudent man, Manual of Regulations for Banks. At the forefront of executive directors, and majority are Independent acting in a like capacity and familiar with such matters, The Bank held one Stockholders Meeting on April 19, 2013. the implementation of its mandates is the Compliance Directors. Members possess adequate knowledge would exercise in the conduct of an enterprise of like There were twelve regular Board meetings from January to Division led by the Chief Compliance Offi cer. and understanding of the institution’s risk exposures character and with similar aims. December 2013: six Special Board Meetings on March 14, and expertise in developing appropriate risk policies April 04, April 18, May 03, October 19 & December 06, The Committee, consisting of the Chairman of the and strategies. Effective February 2013, the RMC The Trust Committee is duly constituted and 2013 and one Organizational meeting on April 19, 2013 or a Board and four directors, meets every two months. conducts monthly (from quarterly) meetings at a authorized by the Board, acts within the sphere of total of nineteen Board meetings during the year. minimum with majority of the members required authority as provided in the Bank’s By-Laws and/or as AAuditudit CommitteeCommittee to be present. In 2013, a total of eleven meetings may be delegated by the Board. It undertakes such NNo.o. ooff Chairman: Carlos R. Alindada have been conducted and majority attended by the responsibilities as, but not limited to, the following: BBoardoard ofof DirectorsDirectors MMeetingseetings (Independent Director) committee members. 1) The acceptance and closure of trust and other AAttendedttended fi duciary accounts; Andrew L. Gotianun, Sr. 15 The Audit Committee provides oversight on the CCompensationompensation CCommitteeommittee 2) The initial review of assets placed under the institution’s fi nancial reporting and internal and Chairman: Lourdes Josephine T. Gotianun Yap trustee’s or fi duciary custody; Jonathan T. Gotianun 17 external audit functions. Through the Internal Audit, (Director) 3) The investment, re-investment and disposition of it provides reasonable assurance of the overall funds or properties; Antonio C. Moncupa, Jr. 19 management of credit, market, liquidity, operational, 4) The review and approval of transactions between The Compensation Committee is composed of legal and other risks of the bank. It also monitors and trust and/or fi duciary accounts; and fi ve members including the President & CEO and Mercedes T. Gotianun 17 evaluates the adequacy and effectiveness of the risk 5) The periodic review of trust and other fi duciary one Independent Director. It ensures that the management, controls and governance processes of accounts to determine the advisability of retention compensation policies and practices are consistent Lourdes Josephine G. Yap 16 the Bank. The Audit Committee is responsible for or disposition of assets and whether the account the appointment of the Chief Audit Executive and an with the corporate culture, strategy and the business is being managed in accordance with the Paul A. Aquino 19 independent external auditor who both report directly environment under which it operates. It evaluates and instrument creating the trust or other fi duciary to them. It ensures that Internal Audit is independent recommends to the Board incentives and other equity- relationship. Jose S. Sandejas 19 of all other organizational units of the Bank as well as based plans designed to attract and retain qualifi ed of the personnel and work it audits. The Committee and competent individuals. The Committee meets at The Trust Committee also presides over the proper Carlos R. Alindada 18 consists of four members, three of whom are least once a year and provides overall direction on the conduct of the Trust Group’s business, reviewing on Independent Directors. compensation and benefi ts strategy of the Bank. a periodic basis, business development initiatives Atty. Benedicto M. Valerio, Jr. 19

32 2013 ANNUAL REPORT They’ve Got Something to Talk About 33 Board of DDirectorsirectors

JJONATHANONATHAN T.T. GOTIANUNGOTIANUN AANDREWNDREW LL.. GGOTIANUN,OTIANUN, SR.SR. CCARLOSARLOS R.R. ALINDADAALINDADA JJOSEOSE SS.. SSANDEJASANDEJAS CChairmanhairman CChairmanhairman EEmeritusmeritus IIndependentndependent DirectorDirector IIndependentndependent DirectorDirector AANTONIONTONIO CC.. MMONCUPA,ONCUPA, JR.JR. MMERCEDESERCEDES T.T. GOTIANUNGOTIANUN LLOURDESOURDES JOSEPHINEJOSEPHINE TT.. AATTY.TTY. BBENEDICTOENEDICTO MM.. VVALERIO,ALERIO, JJR.R. PPAULAUL AA.. AAQUINOQUINO PPresident,resident, CCEOEO aandnd DDirectorirector DDirectorirector GGOTIANUNOTIANUN YAPYAP DDirectorirector / CorporateCorporate SecretarySecretary IIndependentndependent DirectorDirector DDirectorirector

34 20132 0 1 3 AANNUALN N U A L RREPORTE P O R T TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 35 PProroﬁ lleses of the Board

EEastWestastWest iiss ooverseenverseen bbyy iitsts BoardBoard AANDREWNDREW L.L. GGOTIANUN,OTIANUN, SSR.R. MMERCEDESERCEDES TT.. GGOTIANUNOTIANUN PAUL A. AQUINO Chairman Emeritus Director Independent Director ooff DDirectorsirectors ((BOD)BOD) cconsistingonsisting ofof ssixix rregularegular mmembersembers aandnd threethree Mr. Andrew Gotianun, Sr. is the Founder of Filinvest Mrs. Mercedes Gotianun is a Director of Filinvest Mr. Paul Aquino is an Adviser of the Energy Development Corporation and Chairman Emeritus of Development Corporation, Davao Sugar Central Development Corporation, President of Keitech IIndependentndependent Directors.Directors. EastWest Bank since April 2007. Concurrently, he Corporation, Filinvest Land, Inc., and Vice- Educational Foundation and the Honorary Consul is the Chairman Emeritus of the Board of Filinvest Chairman of Filinvest Alabang, Inc. Mrs. Gotianun of the Government of Malta. Mr. Aquino is also Development Corporation, Chairman of Andremerc holds a degree in BS Pharmacy (magna cum laude) a Director of Skycable Inc. He is a graduate of Holdings Corp., Filinvest Land Inc., Paciﬁ c Sugar from the University of the Philippines. She has BS in Electrical Engineering and holds a Masters TThehe membersmembers ofof thethe BoardBoard Holdings and A.L Gotianun Inc. (formerly ALG been serving as a Director of EastWest Bank since in Business Administration from Santa Clara Holdings Inc.). He worked for the Insular Bank 1995. University in California. He was conferred Doctor aarere eelectedlected annuallyannually bbyy tthehe of Asia and America from 1980 to 1985 and for of Management Science (Honoris Causa) by the Philippine School of Business Administration. He sstockholderstockholders andand shallshall eacheach Filinvest Credit Corporation from 1970 to 1985. He is a graduate of San Beda College with an Associate LLOURDESOURDES JJOSEPHINEOSEPHINE TT.. GGOTIANUNOTIANUN YYAPAP has been a Director of the Bank since October 2009. sserveerve a ttermerm ooff oonene yearyear untiluntil Degree in Commercial Science. Director

tthehe electionelection andand qualiqualiﬁ cationcation ofof Mrs. Lourdes Josephine Gotianun Yap is the JOSE S. SANDEJAS JJONATHANONATHAN TT.. GGOTIANUNOTIANUN President and Chief Executive Ofﬁ cer of Filinvest a nnewew setset ofof BOD.BOD. Furthermore,Furthermore, Independent Director Chairman Development Corporation and Chairman of Filinvest Asia Corporation, Cyberzone Properties, tthehe BODBOD shallshall electelect amongamong Mr. Jose Sandejas is formerly a Director of Benguet Mr. Jonathan Gotianun is the Chairman of Filinvest Inc. and The Palms Country Club. She is also Consolidated Corporation, Petron Corporation, and tthemselveshemselves a ChairmanChairman aandnd a Development Corporation and Chairman of EastWest the President of Filinvest Land, Inc., Filinvest the Board of Investments. He graduated with a Rural Bank. Prior to his election as Chairman of the Alabang, Inc. and Festival Supermall, Inc. Mrs. degree in Chemical Engineering from the De La VVice-Chairman.ice-Chairman. Board, he was Vice-Chairman and Director since Yap holds a degree in Business Management from Salle University and pursued a doctorate degree in 1994. He holds a degree in Commerce from the the Ateneo de Manila University and a Masters in Materials Engineering from Rensselaer Polytechnic Santa Clara University in California and a Masters Business Administration major in Finance from the Institute. He has been serving as Director of in Management from Northwestern University in University of Chicago. She has been a Director of EastWest Bank since April 2002. Illinois. Mr. Gotianun sits as Chairman of EastWest EastWest Bank since August 2000. Bank since April 2007.

CCARLOSARLOS RR.. AALINDADALINDADA ATTY. BENEDICTO M. VALERIO, JR. Independent Director AANTONIONTONIO CC.. MONCUPA,MONCUPA, JR.JR. Director/Corporate Secretary President, CEO and Director Mr. Carlos Alindada is formerly Chairman and Atty. Benedicto M. Valerio, Jr. is actively engaged Managing Partner of SGV & Co., Director of the in the practice of law and specializes in litigation Mr. Antonio Moncupa, Jr. has been the President National Power Corporation and Commissioner of and corporate work. He was Assistant Corporate and CEO of EastWest since January 1, 2007. He the Energy Regulation Commission. He graduated Secretary of International Exchange Bank from is currently the First Vice President of the Bankers with a degree in Accounting from the University of 2001-2006 and also served as its General Association of the Philippines (BAP) and Chairman the East, and a Masters in Business Administration Counsel. He holds a BS Commerce degree of the BAP Open Market Committee. Mr. Moncupa in Corporate Finance from New York University. He from the De La Salle University and Bachelor of also sits as Board Member of PDEX Market also pursued an Advance Management Program Laws from the Ateneo de Manila University. He Governance Board and Pasberfund Realty Holdings, at Harvard University. Mr. Alindada has been a ﬁ nished his Masters in Business Administration Inc. He is a Director of Green Bank. Mr. Moncupa Director of EastWest Bank since April 2002. at the Ateneo Graduate School of Business. Atty. holds a double degree in Economics and Accounting Valerio has been a Director since July 2012 and a from the De La Salle University, and a Masters Corporate Secretary of EastWest Bank since April in Business Administration from the University of 2007. Chicago. Before joining EastWest, he was EVP and Chief Financial Ofﬁ cer of the International Exchange Bank.

36 220130 1 3 AANNUALN N U A L RREPORTE P O R T TThey’veh e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 37 Senior Management

Antonio C. Moncupa, Jr. Jacqueline S. Fernandez Arturo L. Kimseng Gerardo Susmerano Renato K. De Borja, Jr. Manuel D. Goseco Ernesto T. Uy Ivy B. Uy President & CEO Executive Vice President Executive Vice President Executive Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President

Virgilio L. Camilo Consuelo V. Dantes Randall Rogelio A. Evangelista Bernadette T. Ratcliffe Agerico S. Verzola Arlene S. Viernes Grace N. Ang Isagani A. Cortes First Vice President First Vice President First Vice President First Vice President First Vice President First Vice President Vice President Vice President

Mari Cris Q. Mauhay Arnulfo V. De Pala Gina Marie C. Galita Geronimo Nilo G. Jimenez Renato P. Peralta Ma. Edwina L. Pineda Allan John M. Tumbaga Clarissa Maria A. Villalon Senior Assistant Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President

They’ve Got Something to Talk About 38 2013 ANNUAL REPORT 39 List of Senior Ofﬁ cers EEastWestastWest RRuralural BBankank President & CEO Vice Presidents Serving the unbanked Antonio C. Moncupa, Jr. Josephine Vilma A. Abad Grace N. Ang and underserved Filipinos Executive Vice Presidents Doli D. Cabahug Jacqueline S. Fernandez Mary Jane D. Caliwan Arturo L. Kimseng Luisito M. Cornejo Gerardo Susmerano Isagani A. Cortes Alastair S. De Lara TToo extendextend itsits reachreach toto Senior Vice Presidents Arnulfo V. De Pala EEdgardodgardo II.. IIsagonsagon EElpidiolpidio FF.. MMasbadasbad IIIIII uunderservednderserved segmentssegments ofof thethe Renato K. De Borja, Jr. Efren O. Dela Cruz, Jr. CComplianceompliance OfOfﬁ ccerer PPresidentresident mmarketarket thatthat hhaveave tthehe potentialpotential Manuel Andres D. Goseco Gina Marie C. Galita fforor growth,growth, EEastWestastWest BBankank ssetet Ernesto T. Uy Eduardo S. Garcia uupp iitsts ruralrural bbankank arm,arm, EastWestEastWest Ivy B. Uy Ma. Agnes E. Jazmines RRuralural BBank,ank, IInc.nc. (EWRB).(EWRB).

Geronimo Nilo G. Jimenez BBackedacked byby thethe strongstrong tracktrack recordrecord ooff tthehe eentitiesntities First Vice Presidents Arlene D. Lamarroza bbehindehind it,it, EWRBEWRB willwill bebe ableable toto catercater ttoo tthehe bankingbanking nneedseeds ofof customerscustomers outsideoutside thethe urbanurban areasareas inin tthehe Alan E. Atienza Jocelyn C. Legaspi ccountryountry aandnd provideprovide widerwider aaccessccess ttoo iinnovativennovative pproductsroducts aandnd deliverydelivery cchannels.hannels. ItIt currentlycurrently ooffersffers Virgilio L. Camilo Steve L. Lim ddepositseposits aandnd loans,loans, includingincluding DepEdDepEd SalarySalary Loan,Loan, JJackjohnackjohn P.P. TorrejosTorrejos BBranchranch BankingBanking BBusinessusiness LoanLoan andand SSSSSS PensionPension Loan,Loan, throughthrough itsits Consuelo V. Dantes Maricel L. Madrid OOperationsperations nnetworketwork ofof 4747 stores,stores, mmostlyostly locatedlocated iinn tthehe VVisayasisayas LLuzonuzon GroupGroup HHeadead aandnd Mindanao.Mindanao. Randall Rogelio A. Evangelista Manuel L. Manalastas EEuselieuselie C.C. PañaresPañares AAdministrativedministrative SServiceservices EEWRBWRB ((formerlyformerly FinManFinMan RRuralural BBank,ank, IInc.)nc.) Elisa O. Go Michael T. Medrero GGrouproup HHeadead cconsolidated,onsolidated, throughthrough aann aassetsset aacquisitioncquisition eeffectiveffective Eloida F. Oquialda Jocelyn T. Pavon NNovemberovember 11,, 22013013 tthehe ruralrural bankingbanking bbusinessusiness ofof tthehe twotwo ruralrural banksbanks thatthat EastWestEastWest earlierearlier acquired,acquired, Bernadette T. Ratcliffe Renato P. Peralta nnamelyamely GreenGreen BBank,ank, IInc.nc. aandnd FinManFinMan Bank,Bank, IInc.nc.

Agerico S. Verzola Isabel S. Pijuan SSheilaheila M.M. BajadoBajado FFinManinMan BBankank iiss a 116-year-old6-year-old rruralural bbankank bbasedased BBankank SSupportupport Arlene S. Viernes Ma. Edwina L. Pineda GGrouproup HHeadead iinn PPasigasig CCityity aandnd engagedengaged inin extendingextending creditcredit toto ffarmers,armers, tenants,tenants, andand ruralrural enterprises.enterprises. EastWestEastWest Alessandro L. Villaraza Xavier C. Ramos iinjectednjected a totaltotal ofof P460P460 millionmillion inin freshfresh capitalcapital iintonto EWRBEWRB ssubsequentubsequent toto thethe regulatoryregulatory approvalapproval Raymond T. Reboredo eeffectiveffective MMayay 221,1, 22013013 oonn tthehe latter’slatter’s increaseincrease inin aauthorizeduthorized capitalcapital sstocktock ffromrom Ben Valentino U. Rodriguez, Jr. PP8080 millionmillion ttoo P1P1 bbillion.illion.

Renato Z. Sampang OOnn OctoberOctober 331,1, 22013,013, EEWRBWRB aacquiredcquired tthehe ggoodood Mai G. Sangalang JJosephoseph JayJay S.S. LoayonLoayon aassetsssets ofof GreenGreen BBank,ank, IInc.nc. (also(also kknownnown aass tthehe RuralRural BBranchranch BankingBanking GGreenreen BBankank ooff CCaraga),araga), tthehe llargestargest rruralural bbankank iinn tthehe OOperationsperations CCaragaaraga RRegionegion iinn ttermserms ooff aassets.ssets. BasedBased inin ButuanButuan Aylwin Herminia P. Tamayo VVisayasisayas GroupGroup HHeadead CCity,ity, AgusanAgusan deldel Norte,Norte, GreenGreen BBankank hhasas bbeeneen Allan John M. Tumbaga sservingerving thethe needsneeds ofof mostlymostly farmers,farmers, governmentgovernment aandnd privateprivate employees,employees, barangaybarangay ofofﬁ cials,cials, Margaret S. Unson ppensionersensioners andand small-scsmall-scaleale bbusinessmen.usinessmen. ItsIts strongstrong NNelsonelson B.B. NazarenoNazareno bbranchranch networknetwork inin tthehe VVisayasisayas aandnd MindanaoMindanao willwill Clarissa Maria A. Villalon JJoo AAnnnn S.S. DDee AAsissis BBranchranch BankingBanking BBankank CreditCredit OOperationsperations aallowllow EWRBEWRB ttoo gaingain eentryntry intointo tthehe micromicroﬁ nancenance OOperationsperations MMindanaoindanao GroupGroup HHeadead bbusiness.usiness. Ferdinand E. Yap GGrouproup HHeadead

40 2013 ANNUAL REPORT They’veT h e y ’ v e GotG o t SomethingS o m e t h i n g tot o TalkT a l k AboutA b o u t 41 Products and Services

EastWest Bank CREDIT CARDS TREASURY PRODUCTS EMERGING MARKETS Platinum MasterCard Foreign Exchange BANKING DEPOSIT PRODUCTS Gold and Classic Visa Spot Revolving Credit Facility Peso Gold and Classic MasterCard Forwards Trade Check Discounting Line Basic Checking Dolce Vita Titanium MasterCard Revolving Promissory Note Line Regular Checking EveryDay Titanium MasterCard Fixed Income Term Loan Checking with Interest Practical MasterCard Peso Government and Checking with Rewards Hyundai MasterCard Corporate Securities Basic Savings USD Government Securities Savings with Statement Savings with Passbook CORPORATE CREDIT FACILITIES EastWest Rural Bank Passbook + Debit Card Bills Purchase Line TRUST PRODUCTS DEPOSIT PRODUCTS Kiddie Savings Domestic Bills Purchase Line Trusteeship Functions Individual Time Deposit Foreign Bills Purchase Line Personal Trust Regular Savings Long Term Negotiable Institutional Trust Current Deposits Certiﬁ cates of Deposit Working Capital Loans Current Deposits (Interest-bearing)

Short Term Loan Agency Functions Special Savings Deposit Foreign Currency Revolving Promisory Note Line Investment Management USD Savings Revolving Credit Facility Accounts (IMA) Corporate USD Time Deposit Trade Check Discounting Escrow Regular Savings RMB Savings Discounting Line Custodianship Current Deposits

Current Deposits (Interest-bearing) Payment Facilities Inventory Financing Investment Funds Special Savings Deposit Debit Card Floor Stock Revolving Facility Peso Money Market Fund Prepaid Card Peso Intermediate Term LOANS Travel Money Card Guarantees Bond Fund DepEd Teachers Loan Gift Card Standby Letters of Credit (SBLC) Peso Long Term Micro Business Loan Domestic SBLC Bond Fund SSS Pensioners Loan CONSUMER LOANS Foreign SBLC Dollar Intermediate Term Auto Loan Bank Guarantees Bond Fund Auto Loan Committed Credit Line Fleet Financing CASH MANAGEMENT Reﬁ nancing Trade Finance SERVICES Domestic Letters of Credit Deposit Pick-up Home Loans with Trust Receipt Facility Check Warehousing Lot Loan Import Letters of Credit Check Writing Home Loan with Trust Receipt Facility Payment Services Condominium Loan Export Financing Facility Collection Services Home Construction Loan Payroll Services Multi-purpose Home Loan Term Financing Term Loans Salary Loan Project Finance Personal Loan Contract To Sell Financing

42 2013 ANNUAL REPORT They’ve Got Something to Talk About 43 EastWest Bank Store Directory As of April 30, 2014

METRO MANILA BF Homes - Aguirre City Place Square E. Rodriguez Ave. - Cubao Amorsolo - Queensway Baesa Town Center 327 Aguirre Ave., BF Homes 3/F, C-P 2-3, City Place Square 1731, E. Rodriguez Sr. Ave. 168 Mall G/F, Queensway Bldg. Baesa Town Center, Retail Store #4 Parañaque City Reina Regente cor. Felipe II St. Brgy. Pinagkaisahan, Cubao 4/F, Unit 4H 09-11, Bldg. 5 118 Amorsolo St., Legaspi Village 232 Quirino Highway, Baesa Tel: (02) 856-0149 Binondo, Manila Quezon City 168 Shopping Mall, Soler St. Makati City Quezon City (02) 575-3888 loc. 8206 Tel: (02) 621-1293 Tel: (02) 477-3979 Binondo, Manila Tel: (02) 511-7006 Tel: (02) 990-4537 (02) 575-3888 loc. 8154 (02) 575-3888 loc. 8537 Tel: (02) 708-4488 (02) 575-3888 loc. 8201 (02) 575-3888 loc. 8155 Bicutan - East Service Rd (02) 575-3888 loc. 8130 G/F, Waltermart Bicutan Commonwealth Eastwood City Annapolis Bagumbayan East Service Rd. cor. Mañalac Ave. G/F, 272 Commonwealth Ave. Unit D, Techno Plaza One Bldg. 999 Shopping Mall G/F, Unit 1-A 184-B, E. Rodriguez Ave. Brgy. San Martin de Porres Brgy. Old Balara, Quezon City Eastwood City Cyberpark 3/F, Unit 10 & 3C-2 The Meriden Condominium Bldg. Bagumbayan, Libis, Quezon City Parañaque City Tel: (02) 355-7736 E. Rodriguez Ave., Bagumabayan 999 Shopping Mall 2 Annapolis St., Northeast Greenhill Tel: (02) 911-3601 Tel: (02) 556-2690 (02) 575-3888 loc. 8231 Quezon City C.M. Recto St., Tondo, Manila San Juan City (02) 575-3888 loc. 8318 (02) 575-3888 loc. 8277 Tel: (02) 234-1389 Tel: (02) 516-2120 Tel: (02) 705-1517 Congressional Ave. (02) 575-3888 loc. 8204 (02) 575-3888 loc. 8200 (02) 575-3888 loc. 8331 Balintawak - A. Bonifacio Binondo Blk. 7 Lot 4-A, Congressional Ave. 659 A. Bonifacio Ave. G/F, Uy Su Bin Bldg. Project 8, Quezon City EDSA - Howmart A. Bonifacio - Balingasa Anonas Balintawak, Quezon City 535-537 Quintin Paredes St. Tel: (02) 926-6609 1264 EDSA near cor. Howmart Road G/F, 2/F & 3/F, Units D to E 94 Anonas St. cor. KM.6 Tel: (02) 442-1802 Binondo, Manila (02) 575-3888 loc. 8313 Brgy. A Samson, Quezon City Winston Plaza 1 Bldg. Kamias, Quezon Cty (02) 575-3888 loc. 8398 Tel: (02) 247-3708 Tel: (02) 990-9588 880 A. Bonifacio Ave. Tel: (02) 924-3402 (02) 575-3888 loc. 8374 Cubao - Araneta Center (02) 575-3888 loc. 8164 Brgy. Balingasa, Quezon City (02) 575-3888 loc. 8314 Banawe - Kaliraya G/F, Philamlife Bldg., Aurora Blvd. Tel: (02) 361-0192 Titan 168 Bldg., 126 Banawe Blumentritt - Rizal Avenue cor. Gen. Araneta St., Cubao EDSA - Kalookan (02) 575-3888 loc. 8276 Antipolo - M.L. Quezon Ave. cor. Kaliraya St., Quezon City 2412 Rizal Ave., Sta. Cruz, Manila Quezon City 490 EDSA, Caloocan City 146 M.L. Quezon Ave. Tel: (02) 711-0925 Tel: (02) 230-4276 Tel: (02) 709-7702 Tel: (02) 364-1858 Alabang - Commerce Ave. cor. F. Dimanlig St., San Roque (02) 575-3888 loc. 8295 (02) 575-3888 loc. 8525 (02) 575-3888 loc. 8232 (02) 575-3888 loc. 8305 Spectrum Center – Block 28 Antipolo City Commerce Ave. cor. Filinvest Ave. Tel: (02) 661-9677 Banawe - N. Roxas Boni Avenue Cubao - P. Tuazon EDSA - Muñoz Filinvest City, Alabang (02) 575-3888 loc. 8135 42 Banawe Ave. G/F, Lourdes Bldg. II, 667 Boni Ave. G/F, Prince John Condominium Lemon Square Bldg., 1199 EDSA Muñoz Muntinlupa City cor. Nicanor Roxas St., Quezon City Brgy. PlainView, Mandaluyong City 291 P. Tuazon Ave., Cubao Brgy. Katipunan, Quezon City Tel: (02) 524-0875 Antipolo - Marcos Hi-way Tel: (02) 354-5024 Tel: (02) 655-9409 Quezon City Tel: (02) 376-5087 Ciannat Complex, Brgy. Mayamot (02) 575-3888 loc. 8162 (02) 575-3888 loc. 8216 Tel: (02) 913-5266 (02) 575-3888 loc. 8177 Alabang - Entrata Marcos Hi-way, Antipolo City (02) 575-3888 loc.8302 Units G3 to G4, Entrata Tel: (02) 682-2250 Banawe - Sct. Alcaraz C. Raymundo Avenue Elcano Filinvest Corporate City (02) 575-3888 loc. 8316 G/F, Units A to C, 740 Banawe Ave. 172 C. Raymundo Ave. Del Monte Elcano Bldg., 622 El Cano St. Alabang, Muntinlupa City cor. Sct. Alcaraz St. Quezon City Brgy. Maybunga, Pasig City 271 Del Monte Ave. Binondo, Manila Tel: (02) 519-6407 Ayala Avenue - Herrera Tel: (02) 354-5042 Tel: (02) 640-5690 cor. Biak na Bato, Quezon City Tel: (02) 242-0254 (02) 575-3888 loc. 8215 G/F, PBCom Tower, 6795 Ayala Ave. (02) 575-3888 loc. 8156 (02) 575-3888 loc. 8113 Tel: (02) 367-1813 (02) 575-3888 loc. 8241 cor. V. Rufi no St., Makati City (02) 575-3888 loc. 8372 Alabang Hills Tel: (02) 784-5644 Benavidez Caloocan - A. Mabini Escolta Don Gesu Bldg., Don Jesus Blvd. (02) 575-3888 loc. 8309 Unit 103, One Corporate Plaza G/F, Gee Bee Bldg. No. 428 Del Monte - D. Tuazon G/F, First United Bldg. Brgy. Cupang, Muntinlupa City Benavidez St., Legaspi Village A. Mabini St. Brgy. 15 155 Del Monte Ave. 413 Escolta cor. Banquero Sts. Tel: (02) 551-0983 Ayala Avenue - MSE Brgy. San Lorenzo, Makati City Caloocan City Brgy. Manresa, Quezon City Binondo, Manila (02) 575-3888 loc. 8290 Makati Stock Exchange Bldg. Tel: (02) 812-0019 Tel: (02) 294-8403 Tel: (02) 416-4712 Tel: (02) 245-3983 Ayala Triangle, Ayala Ave. (02) 575-3888 loc. 8197 (02) 575-3888 loc. 8535 (02) 575-3888 loc. 8328 Alabang - Madrigal Makati City Chino Roces - Bagtikan G/F, Philam Bldg. Tel: (02) 659-8625 Better Living - Doña Soledad G/F, High Pointe Bldg. Divisoria Evangelista Madrigal Business Park (02) 575-3888 loc. 8105 100 Doña Soledad Ave. 1184 Chino Roces Ave. 802 Ilaya St., Binondo, Manila Evangelista cor. Hen Mojica St. Acacia Ave., Muntinlupa City Brgy. Don Bosco, Betterliving Subd. near cor. Bagtikan St. Tel: (02) 244-9928 Bangkal, Makati City Tel: (02) 850-8092 Ayala Avenue - Rufi no Parañaque City Brgy. San Antonio, Makati City (02) 575-3888 loc. 8386 Tel: (02) 846-8516 (02) 575-3888 loc. 8389 G/F, Unit 1, Rufi no Bldg. Tel: (02) 823-4280 Tel: (02) 478-7782 (02) 575-3888 loc. 8118 6784 Ayala Ave. cor. V.A. Rufi no St. (02) 575-3888 loc. 8312 (02) 575-3888 loc. 8160 Don Antonio Heights Alabang Westgate Makati City Blk. 7 Lot 24, Holy Spirit Drive F. Ortigas Jr. Westgate, Filinvest Coraporate City Tel: (02) 844-7463 Better Living - Peru Chino Roces - Dela Rosa Don Antonio Heights AIC Gold Tower Condominium Alabang, Muntinlupa City (02) 575-3888 loc. 8213 Blk. 9 Lot 3, Doña Soledad Ave. G/F Kings Court II Bldg. Brgy. Holy Spirit, Quezon City F. Ortigas Jr. cor. Garnet Ave. Tel: (02) 771-0814 cor. Peru St., Betterliving Subd. 2129 Chino Roces Ave. Tel: (02) 376-0817 Pasig City (02) 575-3888 loc. 8336 Ayala Avenue - SGV Parañaque City Makati City (02) 575-3888 loc. 8153 Tel: (02) 687-0038 SGV 1 Bldg., 6760 Ayala Ave. Tel: (02) 511-1213 Tel: (02) 864-0632 (02) 575-3888 loc. 8303 Amorsolo - Aegis Makati City (02) 575-3888 loc. 8171 (02) 575-3888 loc. 8396 E. Rodriguez Ave. G/F, Unit C Tel: (02) 621-9811 G/F, MC Rillo Bldg. Fairview Aegis People Support Bldg. (02) 575-3888 loc. 8168 Chino Roces - La Fuerza 1168 E. Rodriguez Ave. 72 Commonwealth Ave. Amorsolo St., Makati City Unit/s 10 to 11 La Fuerza Plaza 1 Brgy. Mariana, Quezon City cor. Camaro St., East Fairview Tel: (02) 887-6223 Baclaran 2241 Don Chino Roces Ave. Tel: (02) 695-3519 Quezon City (02) 575-3888 loc. 8104 2/F, New Galleria Baclaran cor. Dela Rosa St. Makati City (02) 575-3888 loc. 8165 Tel: (02) 430-5260 Shopping Mall, LRT South Terminal Tel: (02) 478-9705 (02) 575-3888 loc. 8242 Taft Ave. Ext., Pasay City (02) 575-3888 loc. 8527 Tel: (02) 851-3488 (02) 575-3888 loc. 8397 44 2013 ANNUAL REPORT They’ve Got Something to Talk About 45 EastWest Bank Store Directory As of April 30, 2014

Festival Mall Level 1 Grace Park - 8th Ave. Jose Abad Santos - Tayuman Las Piñas - BF Resort Malabon - Rizal Avenue McKinley Hills 1/F, Festival Supermall 896 8th Ave. cor. J. Teodoro St. G/F and 2/F, Cada Bldg. 10 BF Resort Drive Phase IV 726 Rizal Ave., Brgy. Tañong Unit 1 Cp-1 Filinvest Corporate City Grace Park, Caloocan City 1200 Tayuman St. BF Resort Village, Las Piñas City Malabon City Commerce and Industry Plaza Alabang, Muntinlupa City Tel: (02) 361-7545 cor. Jose Abad Santos Ave. Tel: (02) 822-2802 Tel: (02) 441-4446 McKinley Hill, Bonifacio Global City Tel: (02) 850-6461 (02) 575-3888 loc. 8373 Tondo, Manila (02) 575-3888 loc. 8129 (02) 575-3888 loc. 8250 Taguig City (02) 575-3888 loc. 8351 Tel: (02) 230-2339 Tel: (02) 511-8827 Grace Park - 11th Ave. (02) 575-3888 loc. 8166 Las Piñas - Marcos Alvarez Mandaluyong - Libertad (02) 575-3888 loc. 8252 Festival Mall Level 2 G/F, Blk. 172, Lot 5, Remcor V Bldg. G/F and 2/F, 575 Marcos Alvarez Ave. G/F, Units A to C, Dr. Aguilar Bldg. 2/F, Festival Supermall Rizal Ave. Ext., Caloocan City Juan Luna - Binondo Talon V, Las Piñas City 46 D.M. Guevarra cor. Esteban Sts. MIA Road Filinvest Corporate City Tel: (02) 376-5825 580 Juan Luna St., Binondo, Manila Tel: (02) 550-2163 Highway Hills, Mandaluyong City Salud-Dizon Bldg. 1, No. 5 MIA Road Alabang, Muntinlupa City (02) 575-3888 loc. 8286 Tel: (02) 523-0275 (02) 575-3888 loc. 8182 Tel: (02) 535-3091 Tambo, Parañaque City Tel: (02) 850-3605 (02) 575-3888 loc. 8531 (02) 575-3888 loc. 8119 Tel: (02) 808-1825 (02) 575-3888 loc. 8330 Greenhills - Connecticut Las Piñas - Pamplona G/F, Unit B, Fox Square Bldg. Juan Luna - Pritil Lot 16-B Pamplona III Mandaluyong - Shaw Blvd. Muntinlupa G. Araneta Ave. 53 Connecticut St. G/F, 1953-1955 Juan Luna St. Alabang-Zapote Road, Las Piñas City G/F, Sunshine Square G/F, Remenes Center Bldg. 195 Araneta Ave., Brgy. Santol Northeast Greenhills, San Juan City Tondo, Manila Tel: (02) 873-1925 312 Shaw Blvd., Mandaluyong City 22 National Highway, Putatan Quezon City Tel: (02) 705-1413 Tel: (02) 230-2217 (02) 575-3888 loc. 8304 Tel: (02) 534-7958 / 534-3942 Muntinlupa City Tel: (02) 715-9671 (02) 575-3888 loc. 8175 (02) 575-3888 loc. 8279 (02) 575-3888 loc. 8325 Tel: (02) 846-9311 (02) 575-3888 loc. 8198 Legaspi - Dela Rosa (02) 575-3888 loc. 8122 Greenhills - North Julia Vargas G/F, I-Care Bldg., Dela Rosa St. Mandaluyong - Wack-Wack General Luis - Kaybiga G/F, BTTC Bldg., Ortigas Ave. G/F, Unit 101, One Corporate Center cor. Legaspi Village, Makati City G/F, GDC Bldg., 710 Shaw Blvd. Navotas - M. Naval 4 Gen. Luis St., Brgy. Kaybiga cor. Roosevelt St. Greenhills Julia Vargas cor. Meralco Aves. Tel: (02) 844-6307 Brgy. Wack-Wack, Mandaluyong City 895 M. Naval St. Caloocan City San Juan City Ortigas Center, Pasig City (02) 575-3888 loc. 8238 Tel: (02) 570-4031 Brgy. Sipac-Almasen, Navotas City Tel: (02) 922-5346 Tel: (02) 477-3499 Tel: (02) 655-3339 (02) 575-3888 loc. 8273 Tel: (02) 355-4148 (02) 575-3888 loc. 8509 (02) 575-3888 loc. 8272 (02) 575-3888 loc. 8246 Legaspi - Rufi no (02) 575-3888 loc. 8292 G/F, Libran Bldg., Legaspi St. Marikina - Concepcion Gil Puyat - Dian Greenhills - Promenade Jupiter - Paseo de Roxas cor. V.A. Rufi no Ave. Bayan-Bayanan Ave. Navotas - North Bay G/F, Wisma Cyberhub Bldg. G/F & 2/F, Unit 3, Promenade Bldg. G/F, Royal Banner Property Bldg. Legaspi Village, Makati City Concepcion, Marikina City G/F, Melandria III Bldg. 45 Sen. Gil Puyat Ave., Makati City Missouri St., Greenhills, San Juan City 30 Jupiter or Paseo de Roxas Sts. Tel: (02) 519-7398 Tel: (02) 234-5360 1090 Northbay Blvd. South Tel: (02) 845-0493 Tel: (02) 571-5985 Brgy. Bel-Air, Makati City (02) 575-3888 loc. 8103 (02) 575-3888 loc. 8169 Navotas City (02) 575-3888 loc. 8275 (02) 575-3888 loc. 8526 Tel: (02) 823-1989 Tel: (02) 922-0812 (02) 575-3888 loc. 8521 Leviste Marikina - Gil Fernando (02) 575-3888 loc. 0812 Gil Puyat - Metro House Greenhills - West Unit Ground B. LPL Mansion Bldg. Gil Fernando Ave. cor. Estrador St. G/F, Metro House Bldg. G/F, ALCCO Bldg., Ortigas Ave. Kalentong 122 L.P. Leviste St. Salcedo Village Midtown Subd., San Roque New Manila 345 Sen. Gil Puyat Ave., Makati City Greenhills-West, San Juan City G/F, Unit 1 and 2, 908 Kalentong St. Makati City Marikina City Doña Juana Rodriguez Ave. Tel: (02) 890-8102 Tel: (02) 721-9605 Mandaluyong City Tel: (02) 828-9897 Tel: (02) 681-7143 cor. Aurora Blvd., New Manila (02) 575-3888 loc. 8301 (02) 575-3888 loc. 8346 Tel: (02) 534-0669 (02) 575-3888 loc. 8532 (02) 575-3888 loc. 8137 Quezon City (02) 575-3888 loc. 8278 Tel: (02) 725-1700 Gil Puyat - Pacifi c Star Greenhills Shopping Center Loyola Heights - Katipunan Marikina - J.P. Rizal (02) 575-3888 loc. 8367 G/F, Pacifi c Star Bldg. Unit AC-14, Annapolis Carpark Kamias Unit 13, Blk. 41 Lot 1 367 J.P. Rizal St., Sta. Elena Sen. Gil Puyat Ave., Makati City Greenhills Shopping Center 10 Kamias Road cor. Col. Salgado St. Elizabeth Hall Bldg. Marikina City North EDSA Tel: (02) 403-7657 San Juan City Brgy. West Kamias, Quezon City Loyola Heights, Quezon City Tel: (02) 645-2890 UG/F, Units 4 to 7 (02) 575-3888 loc. 8185 Tel: (02) 721-4886 Tel: (02) 376-6136 Tel: (02) 426-0361 (02) 575-3888 loc. 8251 EDSA Grand Residences, EDSA (02) 575-3888 loc. 8138 (02) 575-3888 loc. 8178 (02) 575-3888 loc. 8249 cor. Corregidor St., Quezon City Gil Puyat – Salcedo Village Marikina - Parang Tel: (02) 376-3059 G/F, Unit 1 C, Country Space 1 Bldg. H.V. Dela Costa Katipunan - St. Ignatius Makati Ave.- Junio JNJ Bldg., 108 BG Molina St. (02) 575-3888 loc. 8205 Gil Puyat, Makati City Unit GFC-2, Classica 1 Bldg. 132 Katipunan Road Unit 2-A, W Bldg., Juno St. Parang, Marikina City Tel: (02) 823-2685 112 H.V. Dela Costa St. St. Ignatius Village, Quezon City cor. Makati Ave., Brgy. Bel-air Tel: (02) 625-5541 Novaliches - Gulod (02) 575-3888 loc. 8528 Salcedo Village, Makati City Tel: (02) 913-2398 Makati City (02) 575-3888 loc. 8291 Blk. 2 Lot 489, Quirino Highway Tel: (02) 550-2268 (02) 575-3888 loc. 8327 Tel: (02) 880-0529 Novaliches, Quezon City Grace Park - 3th Ave. (02) 575-3888 loc. 8237 (02) 575-3888 loc. 8202 Masambong Tel: (02) 355-2741 215 Rizal Ave. Ext., Brgy. 45 Lagro L/G, Annexes B to C (02) 575-3888 loc. 8110 Grace Park West, Caloocan City Intramuros Blk. 6 Lot 2, Quirino Highway Malabon - Gov. Pascual Atkimson Bldg., 627 Del Monte Ave. Tel: (02) 310-5081 G/F, B.F. Condominium Lagro, Novaliches, Quezon City 3315 Gov. Pascual Ave. Brgy. Masambong, Quezon City Novaliches - Talipapa (02) 575-3888 loc. 8512 104 A. Serrano Ave. cor. Solano St. Tel: (02) 352-4948 cor. Ma. Clara St., Malabon City Tel: (02) 376-6952 G/F, Units C to G, 526 Quirino Highway Intramuros, Manila (02) 575-3888 loc. 8248 Tel: (02) 332-9441 (02) 575-3888 loc. 8183 Brgy. Talipapa Novaliches, Quezon City Grace Park - 7th Ave. Tel: (02) 523-4921 (02) 575-3888 loc. 8384 Tel: (02) 332-3592 G/F, Units 1 to 3, 330 Rizal Ave. Ext. (02) 575-3888 loc. 8369 Las Piñas - Almanza Masangkay (02) 575-3888 loc. 8266 cor. 7th Ave., East Grace Park Aurora Arcade Bldg. Malabon - Potrero 1411-1413 Masangkay St. Caloocan City J.P. Rizal Alabang-Zapote Road Units 1 to 2, Mary Grace Bldg. Tondo, Manila Ongpin Tel: (02) 709-5548 805 J.P. Rizal cor. F. Zobel St. Almanza Uno, Las Piñas City Del Monte St., McArthur Highway Tel: (02) 230-2363 G/F, Commercial Unit G-1 (02) 575-3888 loc. 8209 San Miguel Village, Makati City Tel: (02) 551-0597 Potrero, Malabon City (02) 575-3888 loc. 8184 Strata Gold Condominium Bldg. Tel: (02) 511-0789 (02) 575-3888 loc. 8271 Tel: (02) 352-7682 738 Ongpin St., Binondo, Manila (02) 575-3888 loc. 8208 (02) 575-3888 loc. 8116 Mayon Tel: (02) 241-0451 170 Mayon Ave., Quezon City (02) 575-3888 loc. 8293 Tel: (02) 354-4717 (02) 575-3888 loc. 8151 46 2013 ANNUAL REPORT They’ve Got Something to Talk About 47 EastWest Bank Store Directory As of April 30, 2014

Ortigas - Emerald Pasig - Kapasigan President’s Ave. Roosevelt - Sto. Niño Sucat - Kingsland The Fort - Burgos Circle Unit 103, Hanston Bldg. A. Mabini cor. Blumentrit St. 35 President’s Ave., BF Homes 282 Roosevelt Ave., Brgy. Sto. Niño G/F and 2/F, Units 5 to 6 G/F, Units H to I F. Ortigas Jr. Road, Ortigas Center Brgy. Kapasigan, Pasig City Parañaque City San Francisco Del Monte Kingsland Bldg., Dr. A. Santos Ave. Crescent Park Residences Pasig City Tel: (02) 642-8559 Tel: (02) 807-5549 Quezon City Sucat, Parañaque City Burgos Circle cor. 2nd Ave. Tel: (02) 477-4975 (02) 575-3888 loc. 8308 (02) 575-3888 loc. 8315 Tel: (02) 922-1723 Tel: (02) 553-5108 Bonifacio Global City, Taguig (02) 575-3888 loc. 8112 (02) 575-3888 loc. 8190 (02) 575-3888 loc. 8192 Tel: (02) 478-5483 Pasig - Rosario Project 8 - Shorthorn (02) 575-3888 loc. 8125 Ortigas - Garnet Unit 3, 1866 Ortigas Ave. Ext. G/F, West Star Business Ctr. Bldg. Roxas Boulevard Sucat - NAIA Unit 102, Prestige Tower, Emerald Ave. Rosario, Pasig City 31 Shorthorn St. Brgy. Bahay Toro G/F, DENR Bldg., 1515 Roxas Blvd. Unit 707-6 The Fort - F1 Center Ortigas Center, Pasig City Tel: (02) 234-1992 Project 8, Quezon City Ermita, Manila Columbia AirFreight Complex G/F, Unit F, F1 Center Bldg. Tel: (02) 234-1272 (02) 575-3888 loc. 8259 Tel: (02) 952-4526 Tel: (02) 536-5271 Miascor Drive, Ninoy Aquino Ave. 32nd St. cor. 5th Ave. (02) 575-3888 loc. 8255 (02) 575-3888 loc. 8520 (02) 575-3888 loc. 8114 Brgy. Sto. Niño, Parañaque City Bonifacio Global City, Taguig City Pasig - Santolan Tel: (02) 852-2732 Tel: (02) 478-5213 Ortigas - Rockwell G/F, Santolan Bldg. Quezon Ave. - Banawe Salcedo (02) 575-3888 loc. 8343 (02) 575-3888 loc. 8268 Unit W-01, Tower 1 344 A. Rodriguez Ave. G/F, PPSTA-1 Bldg., Quezon Ave. G/F, First Life Center, 174 Salcedo St. The Rockwell Business Center Santolan, Pasig City cor. Banawe St., Quezon City Legaspi Village, Makati City T. Alonzo The Fort - Marajo Tower Ortigas Ave., Pasig City Tel: (02) 654-0196 Tel: (02) 743-4715 Tel: (02) 815-8747 G/F, 623 T. Alonzo St. G/F, Unit 3A Marajo Tower, 26th St. Tel: (02) 575-3888 loc. 8148 (02) 575-3888 loc. 8260 (02) 575-3888 loc. 8329 (02) 575-3888 loc. 8348 Sta.Cruz, Manila cor. 4th Ave., Bonifacio Global City Tel: (02) 735-6954 Taguig City Paco Pasig - Shaw Blvd. Quezon Ave. - Dr. Garcia San Juan (02) 575-3888 loc. 8354 Tel: (02) 856-2722 1050 Pedro Gil St., Paco, Manila 27 Shaw Blvd., Pasig City 940 Quezon Ave. cor. Dr. Garcia St. EastWest Bank Bldg. (02) 575-3888 loc. 8379 Tel: (02) 527-3609 Tel: (02) 570-9356 Brgy. Paligsahan, Quezon City F. Blumentritt cor. M. Salvador Sts. T.M. Kalaw (02) 575-3888 loc. 8100 (02) 575-3888 loc. 8307 Tel: (02) 709-7807 Brgy. San Perfecto, San Juan City A-1 to A-4, Ditz Bldg. Timog Ave. (02) 575-3888 loc. 8207 Tel: (02) 723-8991 444 T.M. Kalaw St., Ermita, Manila G/F, Timog Arcade Padre Faura Pasig - Valle Verde (02) 575-3888 loc. 8102 Tel: (02) 353-9773 67 Timog Ave., Quezon City G/F, Unit D, Metrosquare Bldg. 2 102 E. Rodriguez Jr. Ave. Quezon Ave. - Sct. Albano (02) 575-3888 loc. 8195 Tel: (02) 376-7884 M.H. Del Pilar cor. Padre Faura Sts. Ugong, Pasig City 1604 Quezon Ave. San Lorenzo - A. Arnaiz (02) 575-3888 loc. 8157 Ermita, Manila Tel: (02) 695-3345 Brgy. South Triangle, Quezon City The E-Hotels Makati Bldg. Taft Avenue Tel: (02) 404-0536 (02) 575-3888 loc. 8258 Tel: (02) 352-8163 906 A. Arnaiz Ave. Philippine Academy of Family Tomas Mapua - Lope de Vega (02) 575-3888 loc. 8322 (02) 575-3888 loc. 8109 (formerly Pasay Road) Physicians Bldg., 2244 Taft Ave. G/F and 2/F, Valqua Bldg. Pasig Boulevard San Lorenzo Village, Makati City Manila 1003 Tomas Mapua Pasay - D. Macapagal Blvd. 2 Lakeview Derive cor. Pasig Blvd. Quezon Ave. - Sct. Santiago Tel: (02) 845-0263 Tel: (02) 708-5902 cor. Lope de Vega Sts. No. 8 Pres. Diosdado Macapagal Blvd. Brgy. Bagong Ilog, Pasig City G/F, Sushine Blvd. Plaza, Quezon (02) 575-3888 loc. 8257 (02) 575-3888 loc. 8193 Sta. Cruz, Manila Pasay City Tel: (02) 661-8785 cor. Scout Santiago Aves., Quezon City Tel: (02) 711-0411 Tel: (02) 511-8351 to 53 (02) 575-3888 loc. 8150 Tel: (02) 372-8214 San Miguel Ave. Taft - Nakpil (02) 575-3888 loc. 8194 (02) 575-3888 loc. 8180 (02) 575-3888 loc. 8326 Medical Plaza Bldg., San Miguel Ave. RLR Bldg., 1820 Taft Ave. Paso de Blas Ortigas, Pasig City near cor. Nakpil St., Malate, Manila Tomas Morato Pasay - Libertad 191 Paso de Blas, Valenzuela City Quiapo Tel: (02) 637-5121 Tel: (02) 575-3888 loc. 8141 257 Tomas Morato Unit 265-E, Nemar Bldg. Tel: (02) 332-2246 G/F, E and L Haw Bldg. (02) 575-3888 loc. 8388 cor. Scout Fuentebella, Quezon City Libertad St., Pasay City (02) 575-3888 loc. 8382 502 Evangelista St., Quiapo, Manila Tandang Sora Tel: (02) 929-5313 Tel: (02) 550-2427 Tel: (02) 353-0052 Soler Lot 80-A, Kalaw Hills Subd. (02) 575-3888 loc. 8342 (02) 575-3888 loc. 8212 Pasong Tamo Extension (02) 575-3888 loc. 8199 G/F, R&S Tower, 941 Soler St. Brgy. Culiat, Tandang Sora G/F, Dacon Bldg. Binondo, Manila Quezon City Tordesillas Paseo de Magallanes 2281 Pasong Tamo Ext., Makati City Rada Tel: (02) 243-5872 Tel: (02) 951-2550 Unit 105, Le Metropole Condominium G/F, Unit 102, Tritan Plaza Bldg. Tel: (02) 575-8324 G/F, Unit 102 (02) 575-3888 loc. 8101 (02) 575-3888 loc. 8321 H.V Dela Costa St. cor Tordesillas St. San Antonio St., Paseo de Magallanes (02) 575-3888 loc. 8324 La Maision Condominium Bldg. Amd Sen Gil Puyat Ave. Makati City Rada St., Legaspi Village, Makati City Sto. Cristo Taytay - Ortigas Ext. Salcedo Village Makati City Tel: (02) 478-4858 Paz M. Guazon Tel: (02) 804-2866 G/F, Sto. Cristo Po Taw Bldg. Valley Fait Town Center Tel: (02) 828-8407 (02) 575-3888 loc. 8132 Unit 5 to 6 Topmark Bldg. (02) 575-3888 loc. 8189 107-108 Sto. Cristo cor. Foderama Sts. Ortigas Ave. Ext., Taytay, Rizal (02)575-3888 loc 8524 1763 Paz M. Guazon St., Paco Manila Binondo, Manila Tel: (02) 660-1826 Paseo de Roxas - Legaspi Tel: (02) 516-2263 Regalado Tel: (02) 247-7110 (02) 575-3888 loc. 8311 UN Avenue G/F, Paseo de Roxas Bldg. (02) 575-3888 loc. 8533 Regalado Ave. cor. Archer St. (02) 575-3888 loc. 8323 G/F, Philam Bldg.,U.N. Ave. 111 Paseo de Roxas cor. Legaspi Sts. North Fairview Subd., Quezon City Tektite cor. Ma. Orosa St., Ermita, Manila Legaspi Village, Makati City Perea Tel: (02) 939-5459 Sucat - Evacom East Tower Tel: (02) 524-7753 Tel: (02) 840-5434 G/F, Greenbelt Mansion, 106 Perea St. (02) 575-3888 loc. 8317 8208 Dr. A. Santos Ave. Philippine Stock Exchange Center (02) 575-3888 loc. 8393 (02) 575-3888 loc. 8375 Legaspi Village, Makati City Brgy. San Isidro, Parañaque City Exchange Drive, Ortigas Center Tel: (02) 511-0317 Roosevelt - Frisco Tel: (02) 822-4249 Pasig City UP Village Paseo - Philam Tower (02) 575-3888 loc. 8508 184 Roosevelt Ave. (02) 575-3888 loc. 8161 Tel: (02) 637-4164 65 Maginhawa St., U.P. Village G/F, Philam Tower San Francisco del Monte, Quezon City (02) 575-3888 loc. 8349 Diliman, Quezon City 8767 Paseo de Roxas St., Makati City Pioneer Tel: (02) 372-9480 Sucat - Kabihasnan Tel: (02) 433-8625 Tel: (02) 884-8810 Unit UG-09 (02) 575-3888 loc. 8306 G/F, Units 3 to 4 The Fort - Beaufort (02) 575-3888 loc. 8196 (02) 575-3888 loc. 3324 Pioneer Pointe Condominium Perry Logistics Center Bldg. The Beaufort, 5th Ave. cor. 23rd St. Pioneer St., Highway Hills Ninoy Aquino Ave., Parañaque City Bonifacio Global City, Taguig City Valenzuela - Dalandanan Mandaluyong City Tel: (02) 553-5064 Tel: (02) 808-2236 212 Km. 15 Mac Arthur Highway Tel: (02) 584-3515 (02) 575-3888 loc. 8274 (02) 575-3888 loc. 8203 Brgy. Dalandanan, Valenzuela City (02) 575-3888 loc. 8107 Tel: (02) 277-0276 (02) 575-3888 loc. 8289 48 2013 ANNUAL REPORT They’ve Got Something to Talk About 49 EastWest Bank Store Directory As of April 30, 2014

Valezuela - Gen. T. De Leon Bacoor - Aguinaldo Hi-way Batangas - Rosario Cavite - Tanza Isabela - Cauayan Meycauayan - Malhacan G/F, Units 4 to 5, Liu Shuang Yu Bldg. Gen. E. Aguinaldo Hi-way Rosario-Padre Garcia-Lipa Road Antero Soriano Ave. Maharlika Highway Malhacan Toll Exit 3026 Gen. T. De Leon St. Talaba, Bacoor City, Cavite Poblacion, Rosario, Batangas Daang Amaya 2, Tanza, Cavite Cauayan City, Isabela Meycauayan City, Bulacan Brgy. Gen T. De Leon, Valenzuela City Tel: (046) 417-0345 Tel: (043) 706-4854 Tel: (046) 431-2097 Tel: (078) 652-3945 Tel: (044) 769-9394 Tel: (02) 440-5635 (02) 575-3888 loc. 8320 (02) 575-3888 loc. 8511 (02) 575-3888 loc. 8222 (02) 575-3888 loc. 8383 (02) 575-3888 loc. 8253 (02) 575-3888 loc. 8536 Bacoor - Molino Batangas - Tanauan Cavite - Trece Martires Isabela - Ilagan Mindoro - Calapan Valenzuela - Marulas G/F, Units 101 to 103 98 J.P. Laurel Highway G/F, Dionets Commercial Place Bldg. Maharlika Highway G/F, Paras Bldg., J.P. Rizal St. JLB Enterprise Bldg. VCENTRAL Mall Molino Bldg. Tanauan City, Batangas San Agustin Road, Trece Martires City cor. Florencio Apostol St. Brgy. San Vicente South Km. 12 McArthur Highway Molino Blvd., Bacoor City, Cavite City Tel: (043) 702-4939 Cavite Calamagui 1, Ilagan, Isabela Calapan, Oriental Mindoro Marulas, Valenzuela City Tel: (046) 424-2037 (02) 575-3888 loc. 8267 Tel: (046) 514-0071 Tel: (078) 624-0193 Tel: (043) 288-1809 Tel: (02) 445-0670 (02) 575-3888 loc. 8210 (02) 575-3888 loc. 8299 (02) 575-3888 loc. 8513 (02) 575-3888 loc. 8220 (02) 575-3888 loc. 8345 Batangas City Baguio City - Abanao Ave. 54-A., D. Silang St. Cavite City Isabela - Santiago Naga City Valero 77 Abanao Ave., Baguio City Batangas City, Batangas P. Burgos Ave., Brgy. Caridad 74 National Highway G/F, LAM Bldg., 19 Peñafrancia Ave. G/F, Retail 1-B Area Tel: (074) 448-0515 Tel: (043) 723-7665 Cavite City, Cavite Brgy. Victory Norte Naga City, Camarines Sur Paseo Parkview Tower (02) 575-3888 loc. 8340 (02) 575-3888 loc. 8355 Tel: (046) 431-0510 Santiago City, Isabela Tel: (054) 811-1003 142 Valero St., Salcedo Village (02) 575-3888 loc. 8284 Tel: (078) 305-0344 (02) 575-3888 loc. 8358 Makati City Baguio City - Session Rd Benguet - La Trinidad (02) 575-3888 loc. 8366 Tel: (02) 751-0003 Unit 101-B, Lopez Bldg. Km. 5, Central Pico Dagupan - A.B. Fernandez Avenue Nueva Ecija - Gapan (02) 575-3888 loc. 8347 Session Road, Baguio City La Trinidad, Benguet New Star Bldg., A.B. Fernandez Ave. La Union - Agoo G/F and 2/F, Units 105 to 106 and 205 Tel: (074) 442-3339 Tel: (074) 422-1581 Dagupan City, Pangasinan Mac Arthur Highway TSI Bldg., Jose Abad Santos Ave. Visayas Avenue (02) 575-3888 loc. 8163 (02) 575-3888 loc. 8247 Tel: (075) 529-1903 Brgy. San Antonio, Agoo, La Union Sto. Niño, Gapan City, Nueva Ecija G/F, Units B to D, 15 Visayas Ave. (02) 575-3888 loc. 8233 Tel: (02) 575-3888 loc. 8501 Tel: (044) 486-2258 Brgy. Vasra, Quezon City Baliuag Bulacan - Balagtas (02) 575-3888 loc. 8288 Tel: (02) 441-6604 Benigno Aquino Ave., Poblacion Burol 1st, McArthur Highway Dagupan - Perez Laguna - Biñan (02) 575-3888 loc. 8280 Baliuag, Bulacan Balagtas, Bulacan Maria P. Lee Bldg., Perez Blvd. G/F, Units 1 to 4 Nueva Ecija - San Jose Tel: (044) 766-4878 Tel: (044) 308-2072 Dagupan City, Pangasinan Simrey’s Commercial Bldg. Paulino Bldg., Brgy. Aber 1st West Avenue (02) 575-3888 loc. 8376 (02) 575-3888 loc. 8297 Tel: (075) 522-9221 National Highway Maharlika Road, San Jose City 108 West Ave. cor. West Lawin St. (02) 575-3888 loc. 8337 cor. Alma Manzo Road Nueva Ecija Quezon City Bataan - Balanga Bulacan - Plaridel Brgy. San Antonio, Biñan City, Laguna Tel: (044) 958-1563 Tel: (02) 928-5920 Don Manuel Banzon Ave. Lot 1071-A, Daang Maharlika Road Dasmariñas Tel: (049) 511-7408 (02) 575-3888 loc. 8262 (02) 575-3888 loc. 8356 cor. Cuaderno St., Doña Francisca (formerly Cagayan Valley Road) Km. 31, Gen. Emilio Aguinaldo Highway (02) 575-3888 loc. 8501 Balanga City, Bataan Banga First Plaridel, Bulacan Brgy. Zone 4, Dasmariñas City Nueva Ecija - Talavera West Service Road Tel: (047) 237-0351 Tel: (044) 794-9947 Cavite La Union - San Fernando Lot No. 269-A Maharlika Road West Service Road (02) 575-3888 loc. 8120 (02) 575-3888 loc. 8282 Tel: (046) 424-1454 Kenny Plaza, Brgy. Catbangen Poblacion, Talavera, Nueva Ecija cor. Sampaguita Ave. (02) 575-3888 loc. 8234 Quezon Ave., San Fernando Tel: (044) 958-3849 UPS IV Subd., Parañaque City Batangas - Bauan Cabanatuan - Melencio La Union (02) 575-3888 loc. 8541 Tel: (02) 822-3910 J.P. Rizal cor. San Agustin Sts. Melencio cor. Gen. Luna St. General Trias Tel: (072) 888-2638 (02) 575-3888 loc. 8158 Bauan, Batangas Cabanatuan City, Nueva Ecija G/F, Unit 102, VCentral Getri Bldg. (02) 575-3888 loc. 8362 Nueva Vizcaya - Solano Tel: (043) 702-4970 Tel: (044) 464-1634 Governor’s Drive, Manggahan Maharlika Road, Poblacion Wilson (02) 575-3888 loc. 8214 (02) 575-3888 loc. 8333 Gen. Trias, Cavite Laoag City Solano, Nueva Vizcaya G/F, 220-B Wilson St. Tel: (046) 476-0598 Ablan Bldg., J.P. Rizal Ave. Tel: (02) 575-3888 loc. 8263 Greenhills, San Juan City Batangas - Sto. Tomas Calamba (02) 575-3888 loc. 8124 cor. Don Severo Hernandez Ave. Tel: (02) 696-7366 Km. 67 Maharlika Highway, Poblacion, G/F, SQA Bldg., Brgy. Uno, Crossing Laoag City, Ilocos Norte Olongapo City (02) 575-3888 loc. 8159 Sto. Tomas, Batangas Calamba City, Laguna Ilocos Norte - San Nicolas Tel: (077) 771-3866 G/F, 1215 Rizal Ave. Tel: (02) 575-3888 Loc. 8544 Tel: (049) 545-9614 Brgy.2, San Nicolas, Ilocos Norte (02) 575-3888 loc. 8359 West Tapinac St., Olongapo City Ylaya - Padre Rada (02) 575-3888 loc. 8335 Tel: (077) 670-6465 Tel: (047) 222-8592 G/F, 981 Josefa Bldg., Ylaya St. Bataan - Dinalupihan (02) 575-3888 loc. 8515 Lipa City (02) 575-3888 loc. 8108 cor. Padre Rada St., Tondo, Manila Brgy. San Ramon Carmona Lots 712-A, B and C Tel: (02) 243-9006 Dinalupihan, Bataan Lot 1947-B, Paseo de Carmona Compd. Ilocos Sur - Candon 18 B. Morada Ave., Lipa City Palawan (02) 575-3888 loc. 8294 Tel: (047) 636-0040 Governor’s Drive, Brgy. Maduya G/F, KAMSU Bldg., Brgy. San Jose Batangas Brgy. Manggahan, Rizal Ave. (02) 575-3888 loc. 8239 Carmona, Cavite Candon City, Ilocos Sur Tel: (043) 784-1336 Puerto Princesa City, Palawan Tel: (046) 482-0411 Tel: (077) 674-0253 (02) 575-3888 loc. 8378 Tel: (048) 433-0186 LUZON Batangas - Lemery (02) 575-3888 loc. 8106 (02) 575-3888 loc. 8172 (02) 575-3888 loc. 8187 G/F, LDMC Bldg., Ilustre Ave. Lucena City Angeles - Balibago Dist. III, Lemery, Batangas Cavite - Naic Imus 152 Quezon Ave., Lucena City, Quezon Pampanga - Angeles City Saver’s Mall Bldg. Tel: (043) 740-2602 Ibayo Silangan cor. Sabang Road G/F, LDB Bldg. Tel: (042) 373-7623 G/F, Unit 241-A to 242 McArthur Highway, Balibago (02) 575-3888 loc. 8502 Naic, Cavite 552 Gen. Aguinaldo Highway (02) 575-3888 loc. 8334 AYA Commercial Bldg. Angeles City, Pampanga Tel: (046) 412-0146 Imus City, Cavite 2014 Sto. Rosario St., Brgy. San Jose Tel: (045) 458-0613 Batangas - Nasugbu (02) 575-3888 loc. 8221 Tel: (046) 471-5188 Malolos Angeles City, Pampanga (02) 575-3888 loc. 8170 J. P. Laurel St. Poblacion (02) 575-3888 loc. 8310 G/F, 1197 BUFECO Bldg. Tel: (045) 879-1637 Nasugbu, Batangas Cavite - Silang Brgy. Sumapang Matanda (02) 575-3888 loc. 8344 Tel: (043) 740-1103 J.P. Rizal St., Cavite Mac Arthur Highway Malolos, Bulacan (02) 575-3888 loc. 8530 Tel: (046) 413-2600 Tel: (044) 896 -4773 (02) 575-3888 loc. 8517 (02) 575-3888 loc. 8540

50 2013 ANNUAL REPORT They’ve Got Something to Talk About 51 EastWest Bank Store Directory As of April 30, 2014

Pampanga - Apalit Sorsogon City Bacolod - Hilado Cebu - Freedom Park Cebu - N. Escario Roxas City Brgy. San Vicente, Apalit, Pampanga Ma. Bensuat T. Dogillo Bldg. Hilado Street, Bacolod City CLC Bldg., 280 Magallanes St. Cebu Capitol Commercial Roxas Ave. cor. Osmeña St. Tel: (045) 652-0037 Magsaysay St. Poblacion Negros Occidental near cor. Noli Me Tangere Complex Bldg., N. Escario St. (formerly Pavia St.), Roxas City, Capiz (02) 575-3888 loc. 8167 Sorsogon City Tel: (034) 435-1730 Cebu City, Cebu Cebu City, Cebu Tel: (036) 620-0652 Tel: (056) 421-5778 (02) 575-3888 loc. 8244 Tel: (032) 236-9301 Tel: (032) 253-9226 (02) 575-3888 loc. 8504 Pampanga - Guagua (02) 575-3888 loc. 8545 (02) 575-3888 loc. 8230 (02) 575-3888 loc. 8341 303 Guagua, Sta. Rita Arterial Road Bacolod - Lacson Silay Brgy. San Roque Guagua, Pampanga Subic Bay Lacson cor. Luzuriaga Sts. Cebu - Fuente Osmeña Cebu - Park Mall Rizal St. Silay City, Negros Occidental Tel: (045) 458-0567 G/F Bldg., 1109 Rizal Highway Bacolod City, Negros Occidental G/F, Cebu Women’s Club Bldg. Alfresco 4, Units 39 to 40-A Tel: (034) 441 3863 (02) 575-3888 loc. 8243 Subic Bay Free Zone, Olongapo City Tel: (034) 433-8321 Fuente Osmeña, Cebu City, Cebu Park Mall, Mandaue City, Cebu (02) 575-3888 loc. 8546 Tel: (047) 250-2775 (02) 575-3888 loc. 8385 Tel: (032) 260-2381 Tel: (032) 505-3755 Pangasinan - Lingayen (02) 575-3888 loc. 8298 (02) 575-3888 loc. 8223 (02) 575-3888 loc. 8188 Tacloban City - Marasbaras J.S. Molano Real State Lessor Bldg. Bacolod - Mandalagan G/F, JGC Bldg., Brgy. 77 Avenida Rizal East, Lingayen Tarlac - F. Tañedo Lopues Mandalagan Corp. Bldg. Cebu - Grand Cenia Cebu - Talisay Marasbaras, Tacloban City Pangasinan Mariposa Bldg., F. Tanedo St. Brgy. Mandalagan, Bacolod City G/F, Grand Cenia Bldg. Paul Sy Bldg., Tabunok Highway Tel: (053) 325-3596 Tel: (075) 206-0081 Tarlac City, Tarlac Negros Occidental Archbishop Reyes Ave. Talisay City, Cebu (02) 575-3888 loc. 8506 (02) 575-3888 loc. 8296 Tel: (045) 982-1637 Tel: (034) 441-1141 Cebu City, Cebu Tel: (032) 236-9433 (02) 575-3888 loc. 8353 (02) 575-3888 loc. 8181 Tel: (032) 417-1709 (02) 575-3888 loc. 8227 Tagbilaran City Pangasinan - Rosales (02) 575-3888 loc. 8139 CPG Ave., 2nd District Estrella Compd., Carmen East Rosales Tarlac - Paniqui Boracay Dumaguete City Tagbilaran City, Bohol McArthur Highway, Pangasinan 130 M.H. Del Pilar St. Alexandrea Bldg., Main Road Cebu - Juan Luna Don Joaquin T. Villegas Bldg. Tel: (038) 411-0903 Tel: (075) 632-1017 cor. McArthur Highway Brgy. Balabag, Boracay Island Stephen Jo Bldg., Juan Luna Colon St., Dumaguete City (02) 575-3888 loc. 8265 (02) 575-3888 loc. 8218 Paniqui, Tarlac City, Tarlac Malay, Aklan Cebu City, Cebu Negros Oriental Tel: (045) 491-3846 Tel: (036) 288-2677 Tel: (032) 236-7528 Tel: (035) 226-3797 Pangasinan - San Carlos (02) 575-3888 loc. 8256 (02) 575-3888 loc. 8217 (02) 575-3888 loc. 8225 (02) 575-3888 loc. 8240 MINDANAO Palaris St., San Carlos City, Pangasinan Tel: (075) 632-3095 to 96 Tuguegarao City Catbalogan City Cebu - M. Velez Iloilo - Iznart Bukidnon - Valencia (02) 575-3888 loc. 8149 College Ave. cor. Rizal Curry Ave. cor. San Bartolome St. 151 M. Velez St., Guadalupe G/F, B & C Square Bldg., Iznart Units 2 to 4, Tamay Lang, Park Lane and Bonifacio Sts. Catbalogan City, Samar Cebu City, Cebu cor. Solis Sts., Iloilo City, Iloilo G. Laviña Ave., Poblacion San Fernando - Dolores Tuguegarao City, Cagayan Tel: (053) 321-9955 Tel: (032) 236-0152 Tel: (033) 338-1207 Valencia City, Bukidnon 2/F, Felix S. David Bldg. Tel: (078) 844-0958 (02) 575-3888 loc. 8529 (02) 575-3888 loc. 8174 (02) 575-3888 loc. 8131 Tel: (088) 828-4068 McArthur Highway (02) 575-3888 loc. 8136 (02) 575-3888 loc. 8281 San Fernando City, Pampanga Cebu - A.C. Cortes Cebu - Mactan Iloilo - Jaro Tel: (045) 961-7936 Urdaneta City P. Burgos cor. C. Ouano Sts. G/F, Bldg. II, M. L. Quezon Jaro Townsquare Butuan City (02) 575-3888 loc. 8332 S&P Bldg., Nancayasan Centro, Mandaue City, Cebu National Highway, Pusok Mandaue Foam Bldg. G/F, Deofavente Bldg., Lot 7 Urdaneta City, Pangasinan Tel: (032) 236-1458 Lapu-Lapu City, Cebu Qunitin Salas, Jaro, Iloilo City, Iloilo J. Rosales Ave., Brgy. Imadejas San Fernando - JASA Tel: (075) 656-2838 (02) 575-3888 loc. 8228 Tel: (032) 238-4958 Tel: (033) 320-0241 Butuan City, Agusan Del Norte G/F, Units 1-A and 1-B (02) 575-3888 loc. 8381 (02) 575-3888 loc. 8115 (02) 575-3888 loc. 8245 Tel: (085) 225-9621 Kingsborough Commercial Center Bldg. Cebu - A.S. Fortuna (02) 575-3888 loc. 8123 Jose Abad Santos Ave. Vigan AYS Bldg., A.S. Fortuna St. Cebu - Magallanes Iloilo - Ledesma San Fernando City, Pampanga Quezon Ave., Vigan City, Ilocos Sur Banilad, Mandaue City, Cebu 60 Quiaco Bldg., Magallanes Sta. Cruz Arancillo Bldg., Ledesma Cagayan de Oro City - Carmen Tel: (045) 436-0411 Tel: (077) 674-0370 Tel: (032) 236-4792 cor. Gonzales Sts., Cebu City, Cebu cor. Fuentes Sts., Iloilo City, Iloilo RTS Bldg., Vamenta Blvd., Carmen (02) 575-3888 loc. 8516 (02) 575-3888 loc. 8269 (02) 575-3888 loc. 8173 Tel: (032)254-1005 Tel: (033) 336-0441 Cagayan de Oro City (02) 575-3888 loc. 8361 (02) 575-3888 loc. 8380 Tel: (088) 880-1342 San Fernando - Sindalan Zambales City - Iba Cebu - I.T. Park (02) 575-3888 loc. 8549 G/F, T and M Bldg., Brgy. Sindalan Lot No. 1-A, Zambales - Pangasinan G/F, Calyx Center, W. Ginonzon Cebu - Mandaue North Road Iloilo - Molo McArthur Highway, San Fernando City Provincial Road, Brgy. Sagapan cor. Abad Sts., Asia Town UG/F, Blocks 01 to 03 GT Plaza Mall, MH del Pilar St. Cagayan de Oro City - Cogon Pampanga Iba, Zambales I.T. Park, Cebu City, Cebu ALDO Bldg., North Road Molo, Iloilo De Oro Construction Supply, Inc. Bldg. Tel: (045) 455-1192 Tel: (047) 603-0347 Tel: (032) 236-0698 Basak, Mandaue City, Cebu Tel: (033) 330-2003 Don Sergio Osmena St. (02) 575-3888 loc. 8191 (02) 575-3888 loc. 8542 (02) 575-3888 loc. 8224 Tel: (032) 520-3599 (02) 575-3888 loc. 8145 cor. Limketkai Drive (02) 575-3888 loc. 8133 Cagayan de Oro City San Pablo Cebu - Banilad Kalibo Misamis Oriental 9022 J.P. Rizal Ave. VISAYAS G/F, Unit 101, PDI Condominium Cebu - Mandaue Subangdaku Aklan Triumph Bldg. Tel: (088) 850-0336 San Pablo City, Laguna Gov. M. Cuenco Ave. cor. J. Panis St. Kina Bldg., National Highway Roxas Ave. Ext., Kalibo, Aklan (02) 575-3888 loc. 8219 Tel: (049) 503-2835 Antique - San Jose Banilad, Cebu City. Cebu Subangdaku, Mandaue City, Cebu Tel: (036) 268-3461 (02) 575-3888 loc. 8127 St. Nicolas Bldg., T.A. Fornier St. Tel: (032) 232-5588 Tel: (032) 346-5268 (02) 575-3888 loc. 8505 Cagayan de Oro City - Lapasan San Jose, Antique (02) 575-3888 loc. 8360 (02) 575-3888 loc. 8357 Lapasan Highway San Pedro Tel: (036) 540-7398 Ormoc City Cagayan De Oro City Old National Highway, Brgy. Nueva (02) 575-3888 loc. 8228 Cebu - Basak Pardo Cebu - Minglanilla G/F, Hotel Don Felipe, Annex Bldg. Tel: (088) 850-1870 San Pedro, Laguna South Point Place Bldg. G/F, La Nueva-Minlanilla Center Bonifacio St., Ormoc City, Leyte (02) 575-3888 loc. 8550 Tel: (049) 478-9552 Bacolod - Araneta N. Bacalso Ave., South Road Ward 2, Poblacion, Minglanilla, Cebu Tel: (053) 255-8689 (02) 575-3888 loc. 8128 Unit 1-A and 1-B, Metrodome Bldg. Basak Pardo, Cebu City, Cebu Tel: (032) 236-9314 (02) 575-3888 loc. 8254 Araneta-Alunan St., Brgy. 29 Tel: (032) 236-6980 (02) 575-3888 loc. 8226 Sincang, Bacolod City (02) 575-3888 loc. 8229 Negros Occidental Tel: (034) 435-2887 (02) 575-3888 loc. 8503 52 2013 ANNUAL REPORT They’ve Got Something to Talk About 53 EastWest Bank Store Directory As of April 30, 2014 EastWest Rural Bank Store Directory As of April 30, 2014

Cagayan de Oro City - Velez Davao - Matina Kidapawan METRO MANILA VISAYAS Tacloban 50 Juan Sia Bldg. Block 3 Lot 16, McArthur Highway Doña Leonila Complex G/F insular Life Bldg., Don Apolinar Velez St. Matina, Davao City National Highway, Poblacion Pasig Bacolod Avenida Veteranos St., Tacloban City Cagayan de Oro City Tel: (082) 297-0012 Kidapawan City, North Cotabato 360 Dr. Sixto Antonio Ave. RS Bldg. cor. Hilado and 6th Sts. Tel: (053)321-8728 / 523-5478 Misamis Oriental (02) 575-3888 loc. 8377 Tel: (064) 278-3988 Caniogan, Pasig City Capitol Shopping Center Fax:(053) 523-9189 Tel: (088) 857-8802 (02) 575-3888 loc. 8551 Tel: (02) 916-1023 Bacolod City, Negros Occidental (02) 575-3888 loc. 8338 Davao - McArthur Matina Fax: (02) 643-6334 Tel: (034) 709-1294 Tagbilaran BGP Commercial Complex II Bldg. Koronadal City G/F, Sum Bldg., 29 San Jose St. Cotabato City McArthur Highway, Matina G/F, RCA Bldg., Gen. Santos Drive Baybay Brgy. Cogon, Tagbilaran City, Bohol 31 Quezon Ave., Poblacion 5 Davao City Koronadal City, South Cotabato LUZON D. Veloso cor. M.L. Quezon St. Tel: (038) 235-6747 Cotabato City Tel: (082) 285-8086 Tel: (083) 520-0013 Baybay City, Leyte Fax: (038) 501-9166 Tel: (064) 421-5962 (02) 575-3888 loc. 8519 (02) 575-3888 loc. 8179 Cainta Tel: (053) 335-4109 (02) 575-3888 loc. 8363 Unit A, Martensite Bldg. Fax: (053) 563-8019 Toledo Davao - Panabo City Ozamiz City Karangalan Village, Cainta, Rizal Peñalosa St., Luray I, Toledo City, Cebu Davao - Agdao Quezon St., Sto. Niño, Panabo City G/F, Casa Esperanza Tel: (02) 682-0085 Bogo Tel: (032) 467-8696 Doors 2 to 3, Cabaguio Plaza Davao del Norte Don Alsemo Bernad Ave. M.H. Del Pilar cor. P. Rodriguez St. Cabaguio Ave., Agdao, Davao City Tel: (084) 628-4025 Ozamis City, Misamis Occidental Dagupan Bogo City, Cebu Tel: (082) 222-2029 (02) 575-3888 loc. 8236 Tel: (088) 564-0158 Abarabar Bldg., Perez Blvd. Tel: (032) 434-8029 MINDANAO (02) 575-3888 loc. 8518 (02) 575-3888 loc. 8126 Dagupan City Davao - Quirino Tel: (075) 529-0925 Calbayog Ampayon Davao - Bajada Centron Bldg., Quirino Ave. Pagadian City Irigon Bldg., Pajarito St. Purok 1, Ampayon, Butuan City J.P. Laurel Ave. cor. Iñigo St. cor. General Luna St. Davao City BMD Estate Bldg. Legazpi Calbayog City, Western Samar Tel: (085) 342-3398 Davao City Tel: (082) 224-0582 F. Pajeres cor. Sanson St. Doors 2 to 3 Tel: (055) 533-9767 Tel: (082) 300-5663 (02) 575-3888 loc. 8547 Pagadian City, Zamboanga del Sur Bicol Wei Due Fraternity Bldg. Bayugan (02) 575-3888 loc. 8211 Tel: (062) 215-4681 Quezon Ave., Oro Site Dumaguete Libres St., Taglatawan Davao - Sta. Ana (02) 575-3888 loc. 8186 Legazpi City, Albay D and J Bldg., Dr. V Locsin St. Bayugan City, Agusan del Sur Davao - Buhangin G/F, GH Depot Bldg., Gov. Sales St. Tel: (052) 820-0697 Poblacion 7, Dumaguete City Tel: (085) 343-6018 Km. 5, Buhangin Road Sta. Ana, Davao City Surigao City Fax: (052) 480-3355 Negros Occidental cor. Gladiola St., Buhangin Tel: (082) 221-4019 G/F, EGX Bldg., Rizal St. Tel: (035) 420-9115 Butuan Davao City (02) 575-3888 loc. 8371 Washington, Surigao del Norte Lucena Brgy. Diego Silang Tel: (082) 221-7420 Tel: (086) 231-5155 Benco Bldg., Enriquez F. Ramos Montilla Blvd., Butuan City (02) 575-3888 loc. 8282 Davao - Toril (02) 575-3888 loc. 8264 cor. Juarez Sts., Lucena City, Quezon V. Yap Bldg., 29 F. Ramos St. Tel: (085) 342-5879 Saavedra St., Toril, Davao City Tel: (042) 373-0976 Cebu City, Cebu Fax: (085) 341-1645 Davao - C.M. Recto Tel: (082) 295-6623 Tagum City Tel: (032) 253-3760 P and E Bldg., Poblacion, Brgy. 035 (02) 575-3888 loc. 8134 Gaisano Grand Arcade Meycauayan Fax: (032) 412-9492 Cabadbaran C.M. Recto Ave., Davao City Apokon Road, Lapu-Lapu Ext. 2602 Malhacan National Road Garame St. Tel: (082) 228-6016 Dipolog City Brgy. Visayan Village, Tagum City Brgy. Malhacan, Meycauayan City Iloilo Cabadbaran City, Agusan del Norte (02) 575-3888 loc. 8176 G/F, Felicidad II Bldg., Quezon Ave. Davao del Norte Bulacan Bonifacio Drive (in front of Metro Tel: (085) 343-1042 Miputak, Dipolog City Tel: (084) 216-4325 Tel: (044) 721-2780 Iloilo Water District), Iloilo City Davao - Digos Tel: (065) 908-0272 (02) 575-3888 loc. 8152 Tel: (033) 508-4172 Cagayan de Oro Commercial Space 4, Davao RJ (02) 575-3888 loc. 8522 Naga Fax: (033) 335-8770 Tiano-Cruz Taal St., Divisoria and Sons Realty and Trading Corp. Zamboanga City - Canelar Door 43, Central Business Cagayan de Oro City, Misamis Oriental V. Sotto St., Brgy. Zone-1 General Santos City - Calumpang Printex Bldg., M.D. Jaldon St. District 2 Terminal, Naga City Maasin Tel/Fax: (088) 856-6401 Digos City, Davao del Sur Calumpang Medical Specialist Bldg., Canelar, Zamboanga City Camarines Sur R. Kangleon St., Tunga-Tunga Tel: (082) 272-1896 National Highway, Calumpang, Tel: (062) 990-1110 Tel: (054) 811-7447 Maasin City, Southern Leyte Dapa (02) 575-3888 loc. 8507 General Santos City (02) 575-3888 loc. 8270 Fax: (054) 472-0447 Tel: (053) 570-8513 Mabini St., Brgy. 11, Dapa Tel: (02) 575-3888 Loc. 8553 Fax: (053) 381-3935 Surigao del Norte Davao - J.P. Laurel Zamboanga City - NS Valderrosa Puerto Princesa J.P. Laurel Ave., Davao City General Santos City - Pioneer N.S. Valderrosa cor. Corcuerra Sts. Km. 2, National Highway Mandaue - Subangdaku Davao Tel: (082) (082) 222-0137 Laiz Bldg., Pioneer cor. Magsaysay Ave. Zamboanga City Brgy. San Pedro Dayzon Bldg., Lopez Jaena St. T. Monteverde St., Davao City, (02) 575-3888 loc. 8235 General Santos City Tel: (062) 992-6571 Puerto Princesa City, Palawan Subangdaku, Mandaue City, Cebu Davao del Sur Tel: (083) 552-2472 (02) 575-3888 loc. 8339 Tel: (048) 434-1105 Tel: (032) 346-4008 Tel: (082) 305-5890 Davao - Lanang (02) 575-3888 loc. 8523 Fax: (032) 422-5434 Fax: (082) 222-3078 Blk. 5 Lot 6, Insular Village Sta. Rosa Pampanga, Lanang, Davao City General Santos City - Santiago Unit 5/41, Diamond Bldg. Ormoc General Santos Tel: (082) 234-0726 Ireneo Santiago Blvd. Commercial Complex, Balibago Real St.,cor. San Vidal District 21 J. Catolico Ave., Lagao (02) 575-3888 loc. 8370 General Santos City Sta. Rosa City, Laguna Ormoc City,Leyte General Santos City Tel: (083) 552-0537 Tel: (049) 530-3885 Tel: (053) 561-0802 / 561-6004 Tel: (083) 301-8823 Davao - Magsaysay (02) 575-3888 loc. 8117 Fax: (053) 561-0669 Lot 100-C Brgy. 030 Poblacion Gingoog R. Magsasay Ave. Davao City Iligan City Roxas Desmark Arcade, Brgy. 17 Tel: (082) 222-1279 G/F, Party Plaza Bldg., Quezon Ave. Ext. Unit 2, CLER Grand Hotel National Highway, Gingoog City (02) 575-3888 loc. 8548 Rabago, Iligan City, Lanao del Norte Brgy. Lawaan, Roxas City Misamis Oriental Tel: (063) 222-1681 Tel: (036) 522-8094 Tel: (088) 861-1028 (02) 575-3888 loc. 8111 Fax: (036) 621-6287

54 2013 ANNUAL REPORT They’ve Got Something to Talk About 55 EastWest Rural Bank Store Directory As of April 30, 2014

Kitcharao Tandag Songkoy, Kitcharao, Agusan del Norte Pimentel Bldg., Donasco St. Tel: (086) 826-7542 Bagong Lungsod, Tandag Surigao del Sur Koronadal Tel: (086) 211-3513 Zulueta St., Public Market, Zone 1 Fax: (086) 211-4128 Koronadal City, South Cotabato Tel: (083) 520-0863 Trento Fax: (083) 228-7610 P-7 Juan Luna St., Poblacion Trento Agusan del Sur Madrid Tel: (085) 255-2525 Guillen St., Quirino, Madrid Surigao del Sur Valencia Tel: (086) 213-4014 Alkuino Bldg., Sayre Highway Poblacion, Valencia City, Bukidnon Mangagoy Tel: (088) 828-4108 Espiritu St., Mangagoy, Bislig City Surigao del Sur Tel: (086) 853-2008 Fax: (086) 853-2435 Audited Mati Door 5, Magricom Bldg. II National Highway, Mati Davao Oriental Tel: (087) 811-4083 Financial Statements Nabunturan L. Arabejo St., Poblacion Nabunturan, Compostela Valley

Nasipit Roxas St., Nasipit, Agusan del Norte Tel: (085) 343-2078

Pagadian Jamisola cor. Ariosa St., Santiago Dist. Pagadian City, Zamboanga del Sur Tel: (062) 215-4263

San Francisco Quezon St., Brgy. 2, San Francisco Agusan del Sur Tel: (085) 343-9469

Sto. Tomas Brgy. Tibal-og, 2 National Highway Davao del Norte Tel: (084) 829-2580 Fax: (084) 400-4469

Surigao Parkway, Km. 3, Brgy. Luna Surigao City, Surigao del Norte Tel: (086) 826-6238

Tagoloan National Highway, Poblacion Tagoloan, Misamis Oriental Tel: (08822) 740-717

56 2013 ANNUAL REPORT Statement of Management’s Responsibility for Financial Statements

The management of EAST WEST BANKING CORPORATION (the Bank) is responsible for the preparation and IDLUSUHVHQWDWLRQRIWKHFRQVROLGDWHGDQGSDUHQWFRPSDQ\ìQDQFLDOVWDWHPHQWVIRUWKH\HDUVHQGHG December 31, 2013, 2012 and 2011, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. The responsibility includes designing and implementing LQWHUQDOFRQWUROVUHOHYDQWWRWKHSUHSDUDWLRQDQGIDLUSUHVHQWDWLRQRIFRQVROLGDWHGDQGSDUHQWFRPSDQ\ìQDQFLDO statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

7KH%RDUGRI'LUHFWRUV %2' UHYLHZVDQGDSSURYHVWKHFRQVROLGDWHGDQGSDUHQWFRPSDQ\ìQDQFLDOVWDWHPHQWV and submits the same to the stockholders.

SyCip Gorres Velayo & Co., the independent auditors appointed by the BOD, has examined the consolidated and SDUHQWFRPSDQ\ìQDQFLDOVWDWHPHQWVRIWKH%DQNLQDFFRUGDQFHZLWK3KLOLSSLQH6WDQGDUGVRQ$XGLWLQJDQGLQ its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination.

JONATHAN T. GOTIANUN ANTONIO C. MONCUPA, JR. Chairman of the Board President and CEO

RENATO K. DE BORJA, JR. MANUEL ANDRES D. GOSECO &KLHI)LQDQFH2IìFHU Treasurer

They’ve Got Something to Talk About 57 Independent Auditors’ Report

The Stockholders and the Board of Directors Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 East West Banking Corporation East West Corporate Center Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a The Beaufort whole. The supplementary information required under Revenue Regulations 19-2011 and 15-2010 in Note 33 5th Avenue corner 23rd Street to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a Fort Bonifacio Global City required part of the basic financial statements. Such information is the responsibility of the management of the Taguig City Parent Company. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as whole. Report on the Financial Statements

We have audited the accompanying consolidated financial statements of East West Banking Corporation and Subsidiaries (the Group) and the parent company financial statements of East West Banking Corporation (the Parent Company), which comprise the statements of financial position as at December 31, 2013 and 2012, and the statements of income, statements of comprehensive income, statements of changes in equity and SYCIP GORRES VELAYO & CO. statements of cash flows for each of the three years in the period ended December 31, 2013, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements Josephine Adrienne A. Abarca Management is responsible for the preparation and fair presentation of these financial statements in accordance Partner with Philippine Financial Reporting Standards, and for such internal control as management determines is CPA Certificate No. 92126 necessary to enable the preparation of financial statements that are free from material misstatement, whether SEC Accreditation No. 0466-AR-2 (Group A), due to fraud or error. February 4, 2013, valid until February 3, 2016 Tax Identification No. 163-257-145 Auditors’ Responsibility BIR Accreditation No. 08-001998-61-2012, April 11, 2012, valid until April 10, 2015 Our responsibility is to express an opinion on these financial statements based on our audits. We conducted PTR No. 4225145, January 2, 2014, Makati City our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial February 27, 2014 statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group and of the Parent Company as at December 31, 2013 and 2012, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2013, in accordance with the Philippine Financial Reporting Standards.

58 2013 ANNUAL REPORT They’ve Got Something to Talk About 59 Statements of Financial Position

Consolidated Parent Company Consolidated Parent Company December 31 December 31 2013 2012 2013 2012 2013 2012 2013 2012 (Amounts in Thousands) (Amounts in Thousands) ASSETS

Cash and Other Cash Items (Note 15) P=3,884,538 P=3,235,161 P=3,811,185 P=3,180,497 Remeasurement Losses on Retirement Plan (P=13,877) (P=14,247) (P=13,877) (P=14,247) Due from Bangko Sentral ng Pilipinas Cumulative Translation Adjustment 5,228 (16,351) 5,228 (16,351) (Notes 14 and 15) 18,537,655 21,855,275 18,404,125 21,789,239 19,385,597 17,307,327 19,353,694 17,340,003 Due from Other Banks 1,751,824 1,637,917 1,604,404 1,524,815 Interbank Loans Receivable 3,116,529 582,648 3,116,529 582,648 NON-CONTROLLING INTEREST 6,622 13,553 − − Financial Assets at Fair Value TOTAL EQUITY 19,392,219 17,320,880 19,353,694 17,340,003 Through Profit or Loss (Note 8) 1,948,703 4,260,325 1,948,703 4,260,325 TOTAL LIABILITIES AND EQUITY P=142,298,693 P=121,403,340 P=139,528,238 P=118,431,313 Financial Assets at Fair Value Through Other Comprehensive Income (Note 8) 10,733 9,982 10,733 9,982 Investment Securities at Amortized Cost See accompanying Notes to Financial Statements. (Note 8) 9,080,320 9,620,505 9,079,907 9,620,095 Loans and Receivables (Notes 9, 14 and 26) 93,960,575 71,192,741 91,329,469 69,469,950 Investments in Subsidiaries (Note 1) − − 1,409,449 241,072 Property and Equipment (Notes 10 and 14) 3,452,741 2,740,689 3,320,631 2,572,532 Investment Properties (Notes 11 and 14) 1,006,716 937,648 811,423 730,335 Deferred Tax Assets (Note 23) 995,125 973,137 1,176,342 1,146,176 Goodwill and Other Intangible Assets (Notes 7 and 12) 3,655,735 3,399,851 2,627,030 2,370,542 Other Assets (Notes 13 and 14) 897,499 957,461 878,308 933,105 TOTAL ASSETS P=142,298,693 P=121,403,340 P=139,528,238 P=118,431,313

LIABILITIES AND EQUITY

LIABILITIES Deposit Liabilities (Notes 15 and 26) Demand P=39,568,923 P=34,129,088 P=39,651,700 P=34,271,229 Savings 24,865,438 16,238,463 22,338,254 13,285,003 Time 41,275,731 39,317,476 41,275,731 39,438,612 Long-term negotiable certificates of deposits 5,466,003 1,523,778 5,466,003 1,523,778 111,176,095 91,208,805 108,731,688 88,518,622 Bills and Acceptances Payable (Note 16) 3,288,935 5,571,387 3,288,940 5,571,387 Accrued Taxes, Interest and Other Expenses (Note 17) 1,038,175 956,063 1,011,611 780,511 Cashier’s Checks and Demand Draft Payable 866,457 714,398 866,457 714,398 Subordinated Debt (Note 18) 2,862,500 2,863,751 2,750,000 2,750,000 Income Tax Payable 76,935 28,113 52,208 2 7,7 6 6 Other Liabilities (Note 19) 3,597,377 2,739,943 3,473,640 2,728,626 TOTAL LIABILITIES 122,906,474 104,082,460 120,174,544 101,091,310

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY Common Stock (Note 21) 11,284,096 11,284,096 11,284,096 11,284,096 Additional Paid in Capital (Note 21) 978,721 978,721 978,721 978,721 Surplus Reserves (Note 27) 41,869 38,967 41,869 38,967 Surplus (Note 27) 7, 0 8 7, 6 3 5 5,034,967 7,055,732 5,067,643 Net Unrealized Gain on Financial Assets at Fair Value Through Other Comprehensive Income (Note 8) 1,925 1,174 1,925 1,174

(Forward)

60 2013 ANNUAL REPORT They’ve Got Something to Talk About 61 Statements of Income Statements of Comprehensive Income

Consolidated Parent Company Consolidated Parent Company December 31 December 31 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 (Amounts in Thousands) (Amounts in Thousands) INTEREST INCOME Loans and receivables (Notes 9 and 26) P=9,160,880 P=6,835,521 P=5,450,230 P=8,761,129 P=6,688,256 P=5,379,937 NET INCOME FOR THE YEAR P=2,055,735 P=1,816,381 P=1,730,505 P=1,990,991 P=1,845,547 P=1,735,503 Trading and investment securities (Note 8) 533,366 842,262 1 ,1 08,695 533,359 842,261 1,108,695 Due from other banks and interbank OTHER COMPREHENSIVE INCOME loans receivable and securities (LOSS) FOR THE YEAR, NET OF purchased under resale agreements 161,725 137,833 204,422 153,039 136,996 202,947 TAX 9,855,971 7,815,616 6,763,347 9,447,527 7,667,513 6,691,579 Items that may not be reclassified to INTEREST EXPENSE profit or loss: Deposit liabilities (Note 15) 1,171,564 1,424,556 1,477,742 1,044,019 1,393,282 1,465,053 Change in remeasurement loss of 370 Subordinated debt, bills payable and retirement liability (Note 24) 370 (31,241) (6,368) (31,241) (6,368) other borrowings (Notes 16 and 18) 291,811 303,237 372,246 280,017 294,689 354,278 Change in net unrealized gains 1,463,375 1,727,793 1,849,988 1,324,036 1,687,971 1,819,331 (losses) on financial assets NET INTEREST INCOME 8,392,596 6,087,823 4,913,359 8,123,491 5,979,542 4,872,248 at fair value through other Service charges, fees and commissions comprehensive income 751 (Note 22) 2,528,470 1,860,223 1,536,774 2,204,867 1,737,154 1,509,182 (Note 8) 751 875 (6,000) 875 (6,000) Trading and securities gain (Note 8) 1,005,237 988,110 447,188 1,005,237 988,110 447,188 Items that may be reclassified to profit Foreign exchange gain 121,236 223,193 184,416 121,236 223,193 184,437 or loss: Gain on asset foreclosure and dacion Cumulative translation adjustment 21,579 (8,652) 46,730 21,579 (8,652) 46,730 transactions 93,784 42,412 84,650 90,551 29,853 82,622 Gain on sale (loss on derecognition) of TOTAL OTHER COMPREHENSIVE (39,018) 34,362 investment securities at amortized INCOME (LOSS) 22,700 (39,018) 34,362 22,700 cost (Note 8) 572,490 276,883 (44,440) 572,490 276,883 (44,440) Trust income (Note 27) 29,017 27,842 31,103 29,017 27,842 31,103 TOTAL COMPREHENSIVE INCOME, P=1,777,363 P=1,764,867 P=2,013,691 P=1,806,529 P=1,769,865 Gain (loss) on sale of assets 15,161 4,904 (15,580) 8,217 (4,284) (14,815) NET OF TAX P=2,078,435 Miscellaneous (Note 22) 406,927 272,237 166,048 401,032 228,118 146,413 TOTAL OPERATING INCOME 13,164,918 9,783,627 7,303,518 12,556,138 9,486,411 7,213,938 ATTRIBUTABLE TO: P=1,778,391 P=1,765,327 OPERATING EXPENSES Equity holders of the Parent Company P=2,078,270 (1,028) (460) Compensation and fringe benefits Non-controlling interest 165 (Notes 24 and 26) 2,716,119 1,983,616 1,441,389 2,592,816 1,883,482 1,415,653 TOTAL COMPREHENSIVE INCOME P=2,078,435 P=1,777,363 P=1,764,867 Provision for impairment and credit losses (Notes 9, 10, 11, 13 and 14) 3,097,641 1,530,795 731,848 2,975,701 1,507,833 731,848 Taxes and licenses 865,315 722,607 527,439 795,968 682,997 519,205 See accompanying Notes to Financial Statements. Depreciation and amortization (Notes 10, 11 and 13) 575,615 431,072 325,950 542,051 393,017 289,899 Rent (Note 25) 542,474 410,178 291,049 518,232 386,662 282,623 Amortization of intangible assets (Note 12) 142,031 129,975 75,246 138,301 125,658 74,387 Miscellaneous (Note 22) 2,951,332 2,583,001 1,800,594 2,818,539 2,473,200 1,786,086 TOTAL OPERATING EXPENSES 10,890,527 7,791,244 5,193,515 10,381,608 7,452,849 5,099,701 INCOME BEFORE INCOME TAX 2,274,391 1,992,383 2,110,003 2,174,530 2,033,562 2,114,237 PROVISION FOR INCOME TAX (Note 23) 218,656 176,002 379,498 183,539 188,015 378,734 NET INCOME P=2,055,735 P=1,816,381 P=1,730,505 P=1,990,991 P=1,845,547 P=1,735,503

ATTRIBUTABLE TO: Equity holders of the Parent Company P=2,055,570 P=1,817,409 P=1,730,965 Non-controlling interest 165 (1,028) (460) NET INCOME P=2,055,735 P=1,816,381 P=1,730,505

Basic Earnings Per Share Attributable to Equity Holders of the Parent Company (Note 29) P=1.82 P=1.85 P=3.77 Diluted Earnings Per Share Attributable to Equity Holders of the Parent Company (Note 29) P=1.82 P= 1 . 7 6 P=2.52

See accompanying Notes to Financial Statements. 62 2013 ANNUAL REPORT They’ve Got Something to Talk About 63 Statements of Changes in Equity

64 2013 ANNUAL REPORT They’ve Got Something to Talk About 65 Statements of Cash Flows

Consolidated Parent Company Years Ended December 31 2013 2012 2011 2013 2012 2011 (Amounts in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=2,274,391 P=1,992,383 P=2,110,003 P=2,174,530 P=2,033,562 P=2,114,237 Adjustments for: Provision for impairment and credit losses (Note 14) 3,097,641 1,530,795 731,848 2,975,701 1,507,833 731,848 Depreciation and amortization (Notes 10, 11 and 13) 575,615 431,072 325,950 542,051 393,017 289,899 Gain on asset foreclosure and dacion transactions (93,784) (42,412) (84,650) (90,551) (29,853) (82,622) Amortization of intangible assets (Note 12) 142,031 129,975 75,246 138,301 125,658 74,387 Loss on derecognition (gain on sale) of investment securities at amortized cost (Note 8) (572,490) (276,883) 44,440 (572,490) (276,883) 44,440 Loss (gain) on sale of assets (15,161) (4,904) 15,580 (8,217) 4,284 14,815 Write-off of capitalized software − − 1,542 − − − Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial assets at fair value through profit or loss 2,311,622 4,637,440 5,219,300 2,311,622 4,637,440 5,219,300 Loans and receivables (26,352,284) (24,939,561) (8,752,913) (26,023,078) (23,090,111) (8,786,734) Other assets 55,444 (279,269) 65,212 50,280 (284,698) 61,469 Increase (decrease) in the amounts of: Deposit liabilities 19,967,290 14,529,375 9,003,287 20,213,066 12,928,919 9,117,008 Accrued taxes, interest and other expenses 82,640 202,922 (206,191) 231,628 46,730 (19,683) Cashier’s checks and demand draft payable 152,059 261,829 153,091 152,059 261,829 153,091 Other liabilities 879,013 865,775 (1,720,270) 766,593 1,031,835 (1,872,937) Net cash generated from (used in) operations 2,504,027 (961,463) 6,981,475 2,861,495 (710,438) 7,058,518 Income taxes paid (191,980) (168,349) (198,767) (189,421) (167,475) (198,424) Net cash provided by (used in) operating activities 2,312,047 (1,129,812) 6,782,708 2,672,074 (877,913) 6,860,094

(Forward)

66 2013 ANNUAL REPORT They’ve Got Something to Talk About 67

Consolidated Parent Company Notes to Financial Statements Years Ended December 31 2013 2012 2011 2013 2012 2011 (Amounts in Thousands) CASH FLOWS FROM INVESTING 1. Corporate Information ACTIVITIES Proceeds from sale of: East West Banking Corporation (the Parent Company) was granted authority by the Bangko Sentral ng Pilipinas (BSP) to Investment securities at amortized operate as a commercial bank under Monetary Board (MB) Resolution No. 101 dated July 6, 1994, and commenced cost (Note 8) P=1,718,088 P=1,564,795 P= − P=1,718,088 P=1,564,795 P= − operations on July 8, 1994. The Parent Company was also granted authority by the BSP to operate an expanded foreign Investment properties and other currency deposit unit under MB Resolution No. 832 dated August 31, 1994. On July 31, 2012, the Parent Company received repossessed assets (Notes 11 and 13) 419,428 2 9 7, 3 2 1 224,775 288,095 285,412 2 0 7, 8 7 1 the approval of the BSP to operate as a universal bank. As of December 31, 2013, the Parent Company is effectively 75% Property and equipment (Note 10) 40,226 107,507 2,149 415 8,909 2,149 owned by Filinvest Development Corporation (FDC). The Parent Company’s ultimate parent company is A.L. Gotianun, Inc. Proceeds from maturity of investment The Parent Company’s head office is located at East West Corporate Center, The Beaufort, 5th Avenue corner 23rd Street, securities at amortized cost 101,485 363,302 − 101,485 363,302 − Fort Bonifacio Global City, Taguig City. Acquisitions of: Investment securities at amortized cost (706,894) (2,322,322) (2,490,183) (706,894) (2,322,322) (2,490,183) The Parent Company is a domestic corporation registered with the Securities and Exchange Commission (SEC) on Property and equipment (Note 10) (1,216,121) (1,221,624) (724,904) (1,188,606) (1,153,716) (699,780) March 22, 1994. In 2012, the Parent Company conducted an initial public offering (IPO) of its 283,113,600 common Branch licenses (Note 12) (214,800) (822,000) − (214,800) (822,000) − shares. The Parent Company’s common shares were listed and commenced trading in the Philippine Stock Exchange (PSE) Capitalized software (Note 12) (183,115) (248,169) (135,241) (179,989) (246,688) (123,569) on May 7, 2012 (see Note 21). Additional investments in subsidiaries, including deposit for future stock Through its network of 300 and 245 branches as of December 31, 2013 and 2012, respectively, the Parent Company subscription (Notes 1 and 9) − − − (348,377) (168,426) − provides a wide range of financial services to consumer and corporate clients. The Parent Company’s principal banking Acquisition of a subsidiary, net of products and services include deposit-taking, loan and trade finance, treasury, trust services, credit cards, cash management cash acquired (Note 7) − (19,700) 268,807 − (34,098) (158,548) and custodial services. Net cash used in investing activities (41,703) (2,300,890) (2,854,597) (530,583) (2,524,832) (3,262,060) On March 19, 2009, the Parent Company effectively obtained control of the following entities: CASH FLOWS FROM FINANCING a) AIG Philam Savings Bank (AIGPASB) ACTIVITIES b) PhilAm Auto Finance and Leasing, Inc. (PAFLI) Proceeds from bills and acceptances payable P=2,847,172 P=18,317,295 P=12,690,691 P=2,847,177 P=18,317,295 P=11,040,621 c) PFL Holdings, Inc. (PFLHI) Payments of bills and acceptances payable (5,129,624) (14,909,096) (10,748,189) (5,129,624) (14,906,730) (9,040,940) Issuance of common stock, net of direct cost On March 31, 2009, AIGPASB, PAFLI and PFLHI were merged to the Parent Company. related to issuance (Note 21) − 5,389,289 − − 5,389,289 − Payments of dividends (Note 21) − (1,067,500) (337,500) − (1,067,500) (337,500) On August 19, 2011, the Parent Company acquired 84.78% of the voting shares of Green Bank (A Rural Bank), Inc. (GBI) Acquisition of non-controlling interest for P=158.55 million. GBI is engaged in the business of extending credit to small farmers and tenants and to deserving (Note 1) (7,096) (8,773) − − – − rural industries or enterprises and to transact all businesses which may be legally done by rural banks (see Note 7). In Payment of subordinated debts (1,251) − − − − − 2012, the Parent Company acquired additional shares from the non-controlling shareholder amounting to P=8.77 million Net cash provided by (used in) and from GBI’s unissued capital stock amounting to P=19.65 million, thereby increasing its ownership to 96.53% as of financing activities (2,290,799) 7,721,215 1,605,002 (2,282,447) 7,732,354 1,662,181 December 31, 2012. In 2013, the Parent Company’s deposit for future stock subscription to GBI amounting to P=700.00 million was applied to the 441,000,000 common shares issued by GBI to the Parent Company. In addition, the Parent NET INCREASE (DECREASE) IN (20,455) 4,290,513 5,533,113 (140,956) 4,329,609 5,260,215 Company contributed additional capital amounting to P=1.28 million and acquired non-controlling interest amounting to CASH AND CASH EQUIVALENTS P=0.20 million, thereby increasing its ownership to 99.84% as of December 31, 2013. The Parent Company’s investment in CASH AND CASH EQUIVALENTS GBI amounted to P=888.45 million and P=186.97 million as of December 31, 2013 and 2012, respectively. AT BEGINNING OF YEAR Cash and other cash items 3,235,161 2,243,104 2,079,324 3,180,497 2,190,159 2,079,324 On July 11, 2012, the Parent Company acquired 83.17% voting shares of FinMan Rural Bank, Inc. (FRBI) for P=34.10 million. Due from Bangko Sentral ng Pilipinas 21,855,275 11,315,202 11,556,018 21,789,239 11,306,441 11,556,018 FRBI’s primary purpose is to accumulate deposit and grant loans to various individuals and small-scale corporate entities Due from other banks 1,637,917 1,739,088 1,253,412 1,524,815 1,527,896 1,253,412 as well as government and private employees (see Note 7). In 2012, the Parent Company acquired additional shares of Interbank loans receivable 582,648 7,723,094 2,598,621 582,648 7,723,094 2,598,621 FRBI from its unissued capital stock amounting to P=20.00 million, thereby increasing its ownership to 91.58% as of December 31, 2012. On May 21, 2013, FRBI changed its name to East West Rural Bank, Inc. (EWRB). In 2013, the Parent 27,311,001 23,020,488 1 7, 4 8 7, 3 7 5 27,077,199 22,747,590 1 7, 4 8 7, 3 7 5 Company’s deposit for future stock subscription to EWRB amounting to P=120.00 million was applied to the 46,000,000 CASH AND CASH EQUIVALENTS common shares issued by EWRB to the Parent Company. In addition, the Parent Company contributed additional capital AT END OF YEAR amounting to P=340.00 million and acquired the remaining non-controlling interest amounting to P=6.90 million, thereby Cash and other cash items 3,884,538 3,235,161 2,243,104 3,811,185 3,180,497 2,190,159 increasing its ownership to 100.00% as of December 31, 2013. The Parent Company’s investment in EWRB amounted to Due from Bangko Sentral ng Pilipinas 18,537,655 21,855,275 11,315,202 18,404,125 21,789,239 11,306,441 P=521.00 million and P=54.10 million as of December 31, 2013 and 2012, respectively. Due from other banks 1,751,824 1,637,917 1,739,088 1,604,404 1,524,815 1,527,896 Interbank loans receivable 3,116,529 582,648 7,723,094 3,116,529 582,648 7,723,094 Both GBI and EWRB (the Subsidiaries) were consolidated with the Parent Company from the time the latter gained control. P=27,290,546 P=27,311,001 P=23,020,488 P=26,936,243 P=27,077,199 P=22,747,590 In May 2013, GBI and EWRB entered into an asset purchase agreement with assumption of liabilities (the Purchase and Assumption Agreement) for the transfer of certain assets and liabilities of GBI to EWRB. The transfer of the assets and NET OPERATIONAL CASH FLOWS liabilities took effect on October 31, 2013 after the receipt of the required approvals from the regulators. The transfer of the FROM INTEREST AND DIVIDENDS assets and liabilities of GBI to EWRB was part of the Parent Company’s plan to combine the rural banking business of its Interest received P=9,788,379 P=7,771,785 P=6,767,618 P=9,356,900 P=7,702,386 P=6,676,758 two subsidiaries into a single entity. After the transfer, EWRB will continue the rural banking business of GBI and the Interest paid 1,488,540 1,857,219 1,858,708 1,343,580 1,747,772 1,797,391 remaining assets and liabilities of GBI will be merged to the Parent Company. The Plan of Merger Agreement between Dividend received 69,237 975 1,047 69,237 975 1,047 the Parent Company and GBI was finalized on June 21, 2013. As of December 31, 2013, the Parent Company and GBI are in the process of securing the necessary regulatory approval for the merger. See accompanying Notes to Financial Statements. 68 2013 ANNUAL REPORT They’ve Got Something to Talk About 69 The accompanying financial statements of the Group were approved and authorized for issue by the Parent Company’s whereby the difference between the consideration and the fair value of the share of net assets acquired is recognized as an Board of Directors (the Board or BOD) on February 27, 2014. equity transaction and attributed to the owners of the Parent Company.

Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the 2. Summary of Significant Accounting Policies following new and amended standards and interpretations, which became effective beginning January 1, 2013.

Basis of Presentation PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments) The accompanying financial statements include the consolidated financial statements of the Parent Company and its These amendments require an entity to disclose information about rights of set-off and related arrangements (such as Subsidiaries (collectively referred to herein as the Group) as of December 31, 2013 and 2012 and for the years ended collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in December 31, 2013, 2012 and 2011, and of the Parent Company as of December 31, 2013 and 2012 and for the years accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable ended December 31, 2013, 2012 and 2011. master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format, unless another format is more appropriate, the following The accompanying financial statements have been prepared on a historical cost basis except for financial assets at fair minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the value through profit or loss (FVTPL), financial assets at fair value through other comprehensive income (FVTOCI) and end of the reporting period: derivative financial instruments that have been measured at fair value. The financial statements are presented in a) The gross amounts of those recognized financial assets and recognized financial liabilities; Philippine peso and all values are rounded to the nearest thousand except when otherwise indicated. b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; The financial statements of the Parent Company include the accounts maintained in the Regular Banking Unit (RBU) and c) The net amounts presented in the statement of financial position; Foreign Currency Deposit Unit (FCDU). The functional currency of the RBU and the FCDU is the Philippine peso and United d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise States dollar (USD), respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominated included in (b) above, including: accounts in the RBU are translated into their equivalents in Philippine peso, which is the Parent Company’s presentation i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in currency (see accounting policy on Foreign Currency Transactions and Translation). The financial statements individually PAS 32; and prepared for these units are combined after eliminating inter-unit accounts. ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of both subsidiaries is the Philippine peso. The amendments affect disclosures only and have no impact on the Group’s financial position or performance. The additional disclosures required by the amendments are presented in Note 30 to the financial statements. Statement of Compliance The accompanying financial statements have been prepared in compliance with Philippine Financial Reporting Standards PFRS 10, Consolidated Financial Statements (PFRS). PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC) No. 12, Presentation of Financial Statements Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or special purpose entities. The changes introduced by PFRS 10 require management to exercise significant judgment settlement within 12 months after the statement of financial position date (current) and more than 12 months after the to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the statement of financial position date (non-current) is presented in Note 20. requirements that were in PAS 27. The adoption of the standard did not have a significant impact on the consolidated financial statements of the Group. Basis of Consolidation The Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Parent Company obtains PFRS 12, Disclosure of Interests with Other Entities control and continue to be consolidated until the date when the control ceases. The financial statements of the subsidiaries PFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, are prepared for the same reporting period as the Parent Company using consistent accounting policies. associates and structured entities. The requirements in PFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries (for example, where a subsidiary is controlled with less than a majority of voting All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group rights). The Group has no significant interests in joint arrangements, associates and structured entities that require transactions are eliminated in the consolidation. disclosures. None of the subsidiaries are held by non-controlling interests that are considered material to the Group and which will require additional disclosures by PFRS 12. Subsidiaries are fully consolidated from the date on which control is transferred to the Parent Company. Control is achieved where the Parent Company is exposed, or has rights, to variable return from its involvement with an entity and has the PFRS 13, Fair Value Measurement ability to affect those returns through its power over the entity. The Parent Company has power over the entity when PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change it has existing rights that give it the current ability to direct relevant activities (i.e., activities that signicantly affect the when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS. entity’s returns). Consolidation of subsidiaries ceases when control is transferred out of the Parent Company. The results PFRS 13 defines fair value as an exit price. PFRS 13 also requires additional disclosures. of subsidiaries acquired or disposed of during the period are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate. As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. The Group has assessed that the Non-Controlling Interest application of PFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures, where Non-controlling interest represents the portion of profit or loss and net assets not owned, directly or indirectly, by the required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair Parent Company. value hierarchy is provided in Note 5.

Non-controlling interests are presented separately in the consolidated statement of income, consolidated statement Philippine Accounting Standards (PAS) 1, Presentation of Financial Statements - Presentation of Items of Other of comprehensive income, and within equity in the consolidated statement of financial position, separately from equity Comprehensive Income or OCI (Amendments) attributable to the Parent Company. Any losses applicable to the non-controlling interests are allocated against the The amendments to PAS 1 introduced a grouping of items presented in OCI. Items that will be reclassified (or “recycled”) to interests of the non-controlling interest even if this results in the non-controlling interest having a deficit balance. profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from Acquisitions of non-controlling interests that does not result in a loss of control are accounted for as equity transaction, items that will never be recycled. The amendments affect presentation only and have no impact on the Group’s financial

70 2013 ANNUAL REPORT They’ve Got Something to Talk About 71 position or performance. transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements, and PFRS 12, Disclosure of External appraisers are involved for valuation of significant non-financial assets, such as investment properties. Selection Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and criteria include market knowledge, reputation, independence and whether professional standards are maintained. associates in the separate financial statements. The adoption of the amended PAS 27 did not have a significant impact on the separate financial statements of the entities in the Group. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy (see Note 5). Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items (COCI), amounts due Financial Instruments - Initial Recognition and Subsequent Measurement from BSP and other banks, and interbank loans and receivable (IBLR) with original maturities of three months or less from Date of recognition dates of placements and that are subject to insignificant risks of changes in value. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date, the date that an asset is delivered to or by the Foreign Currency Transactions and Translation Group. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the Group, and The books of accounts of the RBU are maintained in Philippine peso, while those of the FCDU are maintained in USD. (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the Group. For financial reporting purposes, the monetary assets and liabilities of the FCDU and the foreign currency-denominated Securities transactions and related commission income and expense are recorded also on a settlement date basis. monetary assets and liabilities in the RBU are translated in Philippine peso based on the Philippine Dealing System (PDS) Deposits, amounts due to banks and customers, loans and receivables and derivatives are recognized when cash is received closing rate prevailing at the statement of financial position date and foreign currency-denominated income and expenses, by the Group or advanced to the borrowers. at the prevailing exchange rate at the date of transaction. Foreign exchange differences arising from revaluation and translation of foreign currency-denominated assets and liabilities of the RBU are credited to or charged against operations Derivatives are recognized on trade date - the date that the Group becomes a party to the contractual provisions of the in the period in which the rates change. Exchange differences arising from translation of the accounts of the FCDU to instrument. Trade date accounting refers to (a) the recognition of an asset to be received and the liability to pay for it on Philippine peso as the presentation currency are taken to the statement of comprehensive income under Cumulative the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition translation adjustment. of a receivable from the buyer for payment on the trade date.

Non-monetary items that are measured in terms of historical cost are translated using the exchange rates as at the dates The Group recognizes financial instruments when, and only when, the Group becomes a party to the contractual terms of of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the the financial instruments. exchange rates at the date when the fair value was determined. ‘Day 1’ difference Fair Value Measurement Where the transaction price in a non-active market is different from the fair value from other observable current market The Group measures certain financial instruments such as financial assets at FVTPL, financial assets at FVTOCI and transactions in the same instrument or based on a valuation technique whose variables include only data from observable derivative financial instruments, at fair value at each statement of financial position date. Also, fair values of financial market, the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ difference) in the instruments carried at amortized cost and investment properties carried at cost are measured for disclosure purposes. statement of income. In cases where transaction price used is made of data which is not observable, the difference between the transaction price and model value is only recognized in the statement of income when the inputs become Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of market participants at the measurement date. The fair value measurement is based on the presumption that the recognizing the ‘Day 1’ difference amount. transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or Classification, Reclassification and Measurement of Financial Assets and Financial Liabilities • In the absence of a principal market, in the most advantageous market for the asset or liability. For purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is non-derivative and meets the definition of ‘equity’ for the issuer (under PAS 32, Financial Instruments: Presentation). All other non-derivative financial The principal or the most advantageous market must be accessible to by the Group. instruments are ‘debt instruments’.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing Financial assets at amortized cost the asset or liability, assuming that market participants act in their economic best interest. Financial assets are measured at amortized cost if both of the following conditions are met:

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic • the asset is held within the Group’s business model whose objective is to hold assets in order to collect contractual cash benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset flows; and in its highest and best use. • the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Financial assets meeting these criteria are measured initially at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment in value, with the interest calculated All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the recognized as Interest income in the statement of income. The Group classified Cash and other cash items, Due from fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement BSP, Due from other banks, IBLR, Investment securities at amortized cost and Loans and receivables as financial assets at as a whole: amortized cost.

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities. The Group may irrevocably elect at initial recognition to classify a financial asset that meets the amortized cost criteria Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or above as at FVTPL if that designation eliminates or significantly reduces an accounting mismatch had the financial asset indirectly observable. been measured at amortized cost. As of December 31, 2013 and 2012, the Group has not made such designation. Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. Financial assets at FVTOCI At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate equity For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether investments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading.

72 2013 ANNUAL REPORT They’ve Got Something to Talk About 73 A financial asset is held for trading if: Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or is designated as at • it has been acquired principally for the purpose of selling it in the near term; or FVTPL. • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or A financial liability is held for trading if: • it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. • it has been incurred principally for the purpose of repurchasing it in the near term; or Financial assets at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at • on initial recognition it is part of a portfolio of identified financial instruments that the Group fair value, with no deduction for sale or disposal costs. Gains and losses arising from changes in fair value are recognized manages together and has evidence of a recent actual pattern of short-term profit-taking; or in other comprehensive income and accumulated in Net unrealized gain (loss) on financial assets at FVTOCI in the • it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee. statement of financial position. When the asset is disposed of, the cumulative gain or loss previously recognized in Net unrealized gain (loss) on financial assets at FVTOCI is not reclassified to profit or loss, but is reclassified directly to Surplus. Management may designate a financial liability at FVTPL upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis: The Group has designated certain equity instruments that are not held for trading as at FVTOCI on initial application of PFRS 9 (see Note 8). • The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing gains or losses on them on a different basis; or Dividends earned on holding these equity instruments are recognized in the statement of income when the Group’s right to • The liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair receive the dividends is established in accordance with PAS 18, Revenue, unless the dividends clearly represent recovery of value basis, in accordance with a documented risk management or investment strategy; or a part of the cost of the investment. Dividends earned are recognized in the statement of income under Miscellaneous • The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly income. modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets at FVTPL Financial liabilities at amortized cost Debt instruments that do not meet the amortized cost criteria, or that meet the criteria but the Group has chosen to Financial liabilities are measured at amortized cost using the effective interest method, except for: designate as at FVTPL at initial recognition, are measured at fair value through profit or loss. a. financial liabilities at fair value through profit or loss which are measured at fair value; and Equity investments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at b. financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the FVTOCI at initial recognition. continuing involvement approach applies.

The Group’s financial assets at FVTPL include government securities, private bonds and equity securities held for trading Issued financial instruments or their components, which are not designated at FVTPL, are classified as financial liabilities purposes. at amortized cost under Deposit liabilities, Bills and acceptances payable or other appropriate financial liability accounts, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or Financial assets at FVTPL are carried at fair value, and fair value gains and losses on these instruments are recognized as another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or Trading and securities gain in the statement of income. Interest earned on these investments is reported in the statement another financial asset for a fixed number of own equity shares. The components of issued financial instruments that of income under Interest income while dividend income is reported in the statement of income under Miscellaneous contain both liability and equity elements are accounted for separately, with the equity component being assigned the income when the right of payment has been established. Quoted market prices, when available, are used to determine residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the fair value of these financial instruments. If quoted market prices are not available, their fair values are estimated based the liability component on the date of issue. on inputs provided by the BSP, Bureau of Treasury and investment bankers. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. After initial measurement, bills payable and similar financial liabilities not qualified as and not designated as FVTPL, are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at into account any discount or premium on the issuance and fees that are an integral part of the effective interest rate (EIR). the PDS closing rate at the statement of financial position date. The foreign exchange component forms part of its fair value gain or loss. For financial assets classified as at FVTPL, the foreign exchange component is recognized in the Impairment of Financial Assets statement of income. For financial assets designated as at FVTOCI, any foreign exchange component is recognized in The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset other comprehensive income. For foreign currency denominated debt instruments classified at amortized cost, the foreign or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and exchange gains and losses are determined based on the amortized cost of the asset and are recognized in the statement of only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial income. recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may Reclassification of financial assets include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or The Group can reclassify financial assets if the objective of its business model for managing those financial assets changes. delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization The Group is required to reclassify the following financial assets: and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. • from amortized cost to FVTPL if the objective of the business model changes so that the amortized cost criteria are no longer met; and For financial assets classified and measured at amortized cost such as loans and receivables, due from other banks and • from FVTPL to amortized cost if the objective of the business model changes so that the amortized cost criteria start to investment securities at amortized cost, the Group first assesses whether objective evidence of impairment exists be met and the instrument’s contractual cash flows meet the amortized cost criteria. individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. For individually assessed financial assets, the amount of the loss is measured as the difference between the Reclassification of financial assets designated as at FVTPL at initial recognition is not permitted. asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original A change in the objective of the Group’s business model must be effected before the reclassification date. The effective interest rate. reclassification date is the beginning of the next reporting period following the change in the business model. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows

74 2013 ANNUAL REPORT They’ve Got Something to Talk About 75 of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and Financial liabilities s elling the collateral, whether or not foreclosure is probable. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an Financial assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original recognized are not included in a collective assessment for impairment. The carrying amount of the asset is reduced through liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the use of an allowance account and the amount of loss is charged to Provision for impairment and credit losses in the statement of income. statement of income. Interest income continues to be recognized based on the original effective interest rate of the asset. Loans, together with the associated allowance accounts, are written off when there is no realistic prospect of future Repurchase and reverse repurchase agreements recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss Securities sold under agreements to repurchase at a specified future date (‘repos’) are not derecognized from the statement decreases because of an event occurring after the impairment was recognized, the previously recognized impairment of financial position. The corresponding cash received, including accrued interest, is recognized in the statement of loss is reduced by adjusting the allowance account. If a write-off is later recovered, except for credit card receivables, financial position as a loan to the Group, reflecting the economic substance of such transaction. any amounts formerly charged are credited to the Provision for impairment and credit losses in the statement of income. For credit card receivables, if a write-off is later recovered, any amounts previously charged to Provision for impairment and Offsetting Financial Instruments credit losses are credited to Miscellaneous income in the statement of income. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle If the Group determines that no objective evidence of impairment exists for individually assessed financial asset, whether on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively netting agreements, where the related assets and liabilities are presented gross in the statement of financial position. assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being Property and Equipment evaluated. Land is stated at cost less any impairment in value and depreciable properties including buildings, leasehold improvements and furniture, fixtures and equipment are stated at cost less accumulated depreciation and amortization, and any For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of credit risk impairment in value. characteristics such as industry, collateral type, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with The initial cost of property and equipment consists of its purchase price, including import duties, taxes and any directly similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the attributable costs of bringing the assets to their working condition and location for their intended use. Expenditures incurred effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the after the property and equipment have been put into operation, such as repairs and maintenance are normally charged effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, against operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the and are directionally consistent with changes in related observable data from period to period (such as changes in expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item property prices, payment status, or other factors that are indicative of incurred losses of the Group and their magnitude). of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any as additional cost of the assets. When assets are retired or otherwise disposed of, the cost and the related accumulated differences between loss estimates and actual loss experience. depreciation and amortization and any accumulated impairment in value are removed from the accounts and any resulting gain or loss is credited to or charged against current operations. For credit cards receivables, salary loans and personal loans, the Group is using net flow rate methodology for collective impairment (see Note 4). Depreciation and amortization are computed using the straight-line method over the following estimated useful lives (EUL) of the property and equipment. Restructured loans Loan restructuring may involve extending the payment arrangements and the agreement of new loan conditions. Once Years the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews Buildings 30-40 restructured loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be Furniture, fixtures and equipment 3-5 subjected to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate. The difference between the recorded value of the original loan and the present value of the restructured cash flows, discounted at the original effective interest rate, is recognized in Provision for impairment and credit losses in the statement The cost of the leasehold improvements is amortized over the shorter of the covering lease term or the EUL of the of income. improvements of 10 years.

Derecognition of Financial Assets and Financial Liabilities The estimated useful life and the depreciation and amortization method are reviewed periodically to ensure that the period Financial assets and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognized when: items of property and equipment.

• the rights to receive cash flows from the asset have expired; Investment Properties • the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full Investment properties are measured initially at cost, including transaction costs. An investment property acquired through without material delay to a third party under a ‘pass-through’ arrangement; or an exchange transaction is measured at the fair value of the asset acquired unless the fair value of such an asset cannot • the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all be measured in which case the investment property acquired is measured at the carrying amount of the asset given up. the risks and rewards of the asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has Foreclosed properties are recorded as Investment properties upon: (a) entry of judgment in case of judicial foreclosure; transferred the control of the asset. (b) execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or (c) notarization of the Deed of Dacion in case of dation in payment (dacion en pago). Subsequent to initial recognition, depreciable investment properties are Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through carried at cost less accumulated depreciation and any impairment in value. arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing Investment properties are derecognized when they have either been disposed of or when the investment properties are involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying permanently withdrawn from use and no future benefit is expected from their disposal. Any gains or losses on the amount of the asset and the maximum amount of consideration that the Group could be required to repay. retirement or disposal of investment properties are recognized in the statement of income under Gain on sale of assets in the year of retirement or disposal.

76 2013 ANNUAL REPORT They’ve Got Something to Talk About 77 Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected costs, are normally charged to income in the period in which the costs are incurred. useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of acquisition of the amortization expense on intangible assets with finite lives is recognized in the statement of income. investment properties but not to exceed 10 years for both buildings and condominium units. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually or more frequently, Foreclosed properties of land or building are classified under investment properties from foreclosure date. Other foreclosed either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the properties which do not qualify as land or building are classified as other repossessed assets included in Other assets in indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective the statement of financial position. basis.

Transfers are made to investment properties when, and only when, there is a change in use evidenced by ending of owner Gains or losses arising from the derecognition of an intangible asset are measured as the difference between the net occupation, commencement of an operating lease to another party or ending of construction or development. Transfers disposal proceeds and the carrying amount of the asset and are recognized in the statement of income when the asset is are made from investment properties when, and only when, there is a change in use evidenced by commencement of derecognized. owner occupation or commencement of development with a view to sale. Intangible assets include goodwill, branch licenses, customer relationship, core deposits and capitalized software (see Business Combinations Note 12). Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling Goodwill interest in the acquiree. For each business combination, the acquirer elects whether to measure the non-controlling Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition- combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent related costs incurred are expensed in the statement of income. liabilities. Following initial recognition, goodwill is measured at cost less accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification may be impaired. and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business Branch licenses combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the B ranch licenses are determined to have indefinite useful lives. These are tested for impairment annually either individually acquiree is remeasured to fair value at the acquisition date through profit or loss. or at the CGU level. Such intangible assets are not amortized. The useful life is reviewed annually to determine whether indefinite useful life assessment continues to be supportable. If not, the change in the useful life assessment from Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. indefinite to finite is made on a prospective basis. Subsequent changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, will be recognized in accordance with PFRS 9 either in profit or loss or as a change to other comprehensive income. If the Customer relationship and core deposits contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Customer relationship and core deposits are the intangible assets acquired by the Group through business combination. These intangible assets are initially measured at their fair value at the date of acquisition. The fair value of these intangible Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount assets reflects expectations about the probability that the expected future economic benefits embodied in the asset will recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration flow to the Group. is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the statement of income. Following initial recognition, customer relationship and core deposits are measured at cost less accumulated amortization and any accumulated impairment losses. Customer relationship related to the credit cards business is amortized on a A fter initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of straight-line basis over its useful life of 40 years while the customer relationship related to the auto loans business and core impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the deposits are amortized on a straight-line basis over its useful life of 13 and 10 years, respectively (see Note 12). Group’s cash-generating units (CGU) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Capitalized software Capitalized software acquired separately is measured at cost on initial recognition. Following initial recognition, capitalized Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with software is carried at cost less accumulated amortization and any accumulated impairment losses. The capitalized software the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal is amortized on a straight-line basis over its estimated useful life of 5 years. of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained. Impairment of Nonfinancial Assets An assessment is made at each statement of financial position date whether there is any indication of impairment of Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and property and equipment, investment properties, other repossessed assets and intangible assets, or whether there is any therefore no goodwill is recognized as a result. Adjustments to non-controlling interests arising from transactions that do indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated at the higher of the asset’s value in use or its fair value less cost to sell. In assessing value in use, the estimated Intangible Assets future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessments Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired of the time value of money and the risks specific to the asset. in a business combination is its fair value at the date of acquisition. Following initial recognition, intangible assets, excluding goodwill and branch licenses, are carried at cost less any accumulated amortization and any accumulated An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment impairment losses. loss is charged against the statement of income in the period in which it arises, unless the asset is carried at a revalued amount in which case the impairment loss is charged against the revaluation increment of the said asset. The useful lives of intangible assets are assessed to be either finite or indefinite. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever recoverable amount of an asset, but not to an amount higher than the carrying amount that would have been determined there is an indication that the intangible assets may be impaired. The amortization period and the amortization method (net of any depreciation) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment

78 2013 ANNUAL REPORT They’ve Got Something to Talk About 79 loss is credited to current operations, unless the asset is carried at a revalued amount in which case the reversal of the when the syndication has been completed and the Group retains no part of the loans for itself or retains part at the same impairment loss is credited to the revaluation increment of the said asset. effective interest rate as for the other participants.

The following criteria are also applied in assessing impairment of specific assets: Dividend income Dividend income is recognized when the Group’s right to receive payment is established. Property and equipment, investment properties and other repossessed assets The carrying values of the property and equipment and investment properties are reviewed for impairment when events Trading and securities gain or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists and where Trading and securities gain represents results arising from trading activities including all gains and losses from changes in the carrying values exceed the estimated recoverable amounts, the assets or CGUs are written down to their recoverable fair value of financial assets and financial liabilities held for trading. amounts. Commissions earned on credit cards Goodwill Commissions earned on credit cards are taken up as income upon receipt from member establishments of charges arising Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the from credit availments by credit cardholders. These commissions are computed based on certain agreed rates and are carrying value may be impaired. deducted from amounts remittable to member establishments.

Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which the Purchases by credit cardholders, collectible on an installment basis, are recorded at the cost of the items purchased plus goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the certain percentage of cost. The excess over cost is credited to Unearned discount and is shown as a deduction from Loans CGU (or group of CGUs) to which goodwill has been allocated, an impairment loss is recognized immediately in the and receivables in the statement of financial position. statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The unearned discount is taken to income over the installment terms and is computed using the effective interest method.

Branch licenses Customer loyalty programmes Branch licenses are tested for impairment annually at the statement of financial position date either individually or at the Award credits under customer loyalty programmes are accounted for as a separately identifiable component of the CGU level, as appropriate. transaction in which they are granted. The fair value of the consideration received in respect of the initial sale is allocated between the award credits and the other components of the sale. Income generated from customer loyalty programmes is Other intangible assets recognized as part of Service charges, fees and commissions in the statement of income. Other intangible assets such as customer relationship, core deposits and capitalized software are assessed for impairment whenever there is an indication that they may be impaired. Other income Income from sale of services is recognized upon rendition of the service. Income from sale of properties is recognized upon Revenue Recognition completion of the earning process and when the collectibility of the sales price is reasonably assured. Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be r eliably measured. The following specific recognition criteria must also be met before revenue is recognized: Expense Recognition Expenses are recognized in the statement of income when decrease in future economic benefit related to a decrease in an Interest income asset or an increase in a liability has arisen that can be measured reliably. Expenses are recognized in the statement of For all financial instruments measured at amortized cost and interest-bearing financial assets at FVTPL, interest income income: is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or • on the basis of a direct association between the costs incurred and the earning of specific items of income; receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying • on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several amount of the financial asset or financial liability. accounting periods and the association can only be broadly or indirectly determined; or • immediately when expenditure produces no future economic benefits or when, and to the extent that, future economic The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and benefits do not qualify or cease to qualify, for recognition in the statement of financial position as an asset. includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The adjusted carrying amount is calculated based on the original Expenses in the statement of income are presented using the nature of expense method. General and administrative effective interest rate. The change in the carrying amount is recorded as interest income. Once the recorded value of a expenses are cost attributable to administrative and other business activities of the Group. financial asset or group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and Service charges and penalties requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets Service charges and penalties are recognized only upon collection or accrued when there is a reasonable degree of certainty and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of as to its collectibility. the following applies: (a) there is a change in contractual terms, other than a renewal or extension of the arrangement; Fee and commission income (b) a renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can the lease term; be divided into the following two categories: (c) there is a change in the determination of whether fulfillment is dependent on a specified asset; or (d) there is a substantial change to the asset. a) Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include Where a reassessment is made, lease accounting shall commence or cease from the date when the change in commission income, fiduciary fees and credit related fees. circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b). b) Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognized on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are r ecognized after fulfilling the corresponding criteria. Loan syndication fees are recognized in the statement of income

80 2013 ANNUAL REPORT They’ve Got Something to Talk About 81 Group as lessee Provisions and Contingencies Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event; it is leases. Operating lease payments are recognized as an expense in the statement of income on a straight-line basis over probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable the lease term. Contingent rents are recognized as an expense in the period in which they are incurred. estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at pre-tax rate that reflects current market assessments of the Retirement Cost time value of money and where, appropriate, the risk specific to the liability. Where discounting is used, the increase in the Defined benefit plan provision due to the passage of time is recognized as Interest expense in the statement of income. T he net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but from the plan or reductions in future contributions to the plan. are disclosed when an inflow of economic benefits is probable.

The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit Income Taxes method. Current taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered Defined benefit costs comprise the following: from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted • Service cost or substantively enacted at the statement of financial position date. • Net interest on the net defined benefit liability or asset • Remeasurements of net defined benefit liability or asset Deferred taxes Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the statement of financial Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. recognized as expense in the statement of income. Past service costs are recognized when plan amendment or curtailment occurs. Deferred tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred tax assets are r ecognized for all deductible temporary differences, carryforward of unused tax credits from the excess of Minimum Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability Corporate Income Tax (MCIT) over the regular income tax and unused Net Operating Loss Carryover (NOLCO), to the extent or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds that it is probable that taxable profit will be available against which the deductible temporary differences and the to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as carryforward of unused tax credits from excess MCIT and unused NOLCO can be utilized. Deferred tax, however, is not expense or income in the statement of income. recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or Remeasurements comprising actuarial gains and losses, return on plan assets (excluding net interest on defined benefit loss. asset) and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the profit or loss in subsequent periods. All remeasurements are recognized in other comprehensive income account. extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset Remeasurement gains (losses) on retirement plan are not reclassified to profit or loss in subsequent periods. to be utilized.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets Current tax and deferred tax relating to items recognized directly in equity is recognized in other comprehensive income and are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based not in the statement of income. on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the the related obligations). statement of financial position date.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is Equity recognized as a separate asset at fair value when and only when reimbursement is virtually certain. Capital stock is measured at par value for all shares issued. When the Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued. Termination benefit Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a When the shares are sold at a premium, the difference between the proceeds and the par value is credited to Additional result of either an entity’s decision to terminate an employee’s employment before the normal retirement date or an paid in capital account. When shares are issued for a consideration other than cash, the proceeds are measured by the fair employee’s decision to accept an offer of benefits in exchange for the termination of employment. value of the consideration received. In case the shares are issued to extinguish or settle the liability of the Group, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more A liability and expense for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the reliably determinable. offer of those benefits and when the entity recognizes the related restructuring costs. Initial recognition and subsequent changes to termination benefits are measured in accordance with the nature of the employee benefit, as either post- Direct cost incurred related to the equity issuance, such as underwriting, accounting and legal fees, printing costs and taxes employment benefits, short-term employee benefits, or other long-term employee benefits. are charged to Additional paid in capital account. If additional paid-in capital is not sufficient, the excess is charged against Surplus. Employee leave entitlement Employee entitlement to annual leave are recognized as a liability when the employees render the services that increases Surplus represents accumulated earnings of the Group less dividends declared. their annual leave enititlement. The cost of accumulating annual leave are measured as the additional amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. Dividends on Common Shares Dividends on common shares are recognized as a liability and deducted from equity when declared and approved by BOD of the Parent Company and approved by the BSP. Dividends for the year that are declared and approved after the statement of financial position date, if any, are dealt with as an event after the financial reporting date and disclosed accordingly.

82 2013 ANNUAL REPORT They’ve Got Something to Talk About 83 Earnings Per Share (EPS) Philippine Interpretation IFRIC 21, Levies (IFRIC 21) Basic EPS is determined by dividing the net income for the year attributable to common shares by the weighted average IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the number of common shares outstanding during the year while diluted EPS is computed by dividing net income for the year relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that attributable to common shares by the weighted average number of outstanding and dilutive potential common shares. no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods Basic and diluted EPS are given retroactive adjustments for any stock dividends declared in the current year, if any. beginning on or after January 1, 2014.

Segment Reporting Annual Improvements to PFRSs (2009-2011 cycle) A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is one that provides The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary amendments to PFRSs. The products or services within a particular economic environment that is subject to risks and returns that are different from Group adopted these amendments effective January 1, 2013. Except as otherwise indicated, the adoption of these those segments operating in other economic environments. improvements did not have an impact on the Group’s financial statements.

The Group’s operations are organized according to the nature of products and services provided. Financial information on PFRS 1, First-time Adoption of PFRS - Borrowing Costs business segments is presented in Note 6. The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously Events after the Financial Reporting Date capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, Post year-end events that provide additional information about the Group’s position at the statement of financial position borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material to the financial statements. PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information These amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are Fiduciary Activities mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items Assets and income arising from fiduciary activities together with related undertakings to return such assets to customers in the financial statements. An entity must include comparative information in the related notes to the financial statements are excluded from the financial statements where the Parent Company acts in a fiduciary capacity such as nominee, when it voluntarily provides comparative information beyond the minimum required comparative period. The additional trustee or agent. comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective Future Changes in Accounting Policies restatement or reclassification of items in the financial statements) are not required. Standards issued but are not yet effective up to the date of issuance of the financial statements are listed below. This is a listing of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. PAS 16, Property, Plant and Equipment - Classification of servicing equipment Except as otherwise indicated, the Group does not expect the adoption of these new and amended standards to have a The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, significant impact on the financial statements. plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendments) These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36. In PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods transaction are accounted for in accordance with PAS 12, Income Taxes. beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27) The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only These amendments are effective for annual periods beginning on or after January 1, 2014. They provide an exception to when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. affects disclosures only and has no impact on the Group’s financial position or performance.

PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Annual Improvements to PFRSs (2010-2012 cycle) Accounting (Amendments) These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to PFRSs. Except hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after otherwise indicated, the adoption of these improvements will not have an impact on the Group’s financial statements. January 1, 2014. PFRS 2, Share-based Payment - Definition of vesting condition PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendment revised the definitions of vesting condition and market condition and added the definitions of performance The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross payment transactions for which the grant date is on or after July 1, 2014. settlement mechanisms that are not simultaneous. PFRS 3, Business Combinations - Accounting for contingent consideration in a business combination PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments) The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9 service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. (or PAS 39, if PFRS 9 is not yet adopted). The amendment shall be prospectively applied to business combinations for Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these which the acquisition date is on or after July 1, 2014. contributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annual periods beginning on or after July 1, 2014.

84 2013 ANNUAL REPORT They’ve Got Something to Talk About 85 PFRS 8, Operating Segments - Aggregation of operating segments and reconciliation of the total of the reportable PFRS 3, Business Combinations - Scope exceptions for joint arrangements segments’ assets to the entity’s assets The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the T he amendments require entities to disclose the judgment made by management in aggregating two or more operating financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after segments. This disclosure should include a brief description of the operating segments that have been aggregated in this July 1 2014 and is applied prospectively. way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of PFRS 13, Fair Value Measurement - Portfolio exception the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied retrospectively. prospectively.

PFRS 13, Fair Value Measurement - Short-term receivables and payables PAS 40, Investment Property The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment amounts when the effect of discounting is immaterial. property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate restatement of accumulated depreciation scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the beginning on or after July 1, 2014 and is applied prospectively. asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the PFRS 9, Financial Instruments asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which b. The accumulated depreciation is eliminated against the gross carrying amount of the asset. relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based immediately preceding annual period. approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that PAS 24, Related Party Disclosures - Key management personnel economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for non-financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable also requires more extensive disclosures for hedge accounting. by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective PFRS 9 currently has no mandatory effective date. The Group had early adopted the first phase of PFRS 9 effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures January 1, 2011. The Group will not adopt the third phase of the standard before the completion of the limited amendments only and have no impact on the Group’s financial position or performance. and the second phase of the project.

PAS 38, Intangible Assets Revaluation Method Proportionate restatement of accumulated amortization Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of to the revalued amount, and the asset shall be treated in one of the following ways: real estate directly or through subcontractors. The SEC and the Financial Reporting Standards Council (FRSC) have deferred a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. real estate industry is completed. b. The accumulated amortization is eliminated against the gross carrying amount of the asset.

The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard. The amendments are effective 3. Significant Accounting Judgments and Estimates for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual The preparation of the financial statements in compliance with PFRS requires the Group to make judgments and estimates period. that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent liabilities. Future events may occur which will cause the judgments and assumptions used in arriving at the Annual Improvements to PFRSs (2011-2013 cycle) estimates to change. The effects of any change in judgments and estimates are reflected in the financial statements as these become reasonably determinable. The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to PFRSs. Except otherwise indicated, the adoption of these improvements will not have an impact on the Group’s financial statements. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’ The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet Judgments mandatory, but that permits early application, provided either standard is applied consistently throughout the periods a) Contingencies presented in the entity’s first PFRS financial statements. The Group is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsels handling the Group’s and the Parent Company’s defense in these matters and is based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a material adverse effect on its financial position. It is possible, however, that future

86 2013 ANNUAL REPORT They’ve Got Something to Talk About 87 results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies On various dates in 2013, the Parent Company sold a substantial portion of government securities from one of the relating to these proceedings (see Note 28). portfolios in its hold-to-collect business model. The securities were sold to fund the lending requirement for FDC. As a result of the more than infrequent number of sales of securities out of the portfolio, the Parent Company assessed b) Functional currency whether such sales are still consistent with the objective of collecting contractual cash flows. The Parent Company PAS 21, The Effects of Changes in Foreign Exchange Rates, requires management to use its judgment to determine concluded that although more than infrequent number of sales has been made out of the portfolio, this is not significant the entity’s functional currency such that it most faithfully represents the economic effects of the underlying transactions, enough to be a change in the business model to trigger reclassification of the remaining securities in the portfolio. The events and conditions that are relevant to the entity. The Parent Company determined that the RBU’s and FCDU’s Parent Company has now two business models on the affected portfolio, the first for the remaining securities in the functional currency is the Philippine peso and USD, respectively. In addition, GBI and EWRB determined that their portfolio after the sale and the second for the new securities to be acquired under the portfolio after the sale. The respective functional currency is in Philippine peso. In making these judgments, the Group considers the following: remaining securities in the portfolio will remain to be classified as measured at amortized cost and new securities to be acquired after the sale will be classified as at FVTPL. • the currency that mainly influences sales prices for financial instruments and services (this will often be the currency in which sales prices for its financial instruments and services are denominated and settled) In 2012, the Parent Company sold government securities classified as investment securities at amortized cost. The sale • the currency in which funds from financing activities are generated; and of investment securities was contemplated to secure financing for the Parent Company’s future capital expenditures. • the currency in which receipts from operating activities are usually retained. In 2011, the Parent Company participated in a debt exchange program initiated by the Bureau of Treasury for certain investments in government securities at amortized cost. The exchange of investment securities at amortized cost was c) Operating leases executed because of a change in the debt structure initiated by the creditor. The Parent Company has determined that The Group has entered into lease commitments for its occupied offices and branches. Based on an evaluation of the the sale of investment securities in 2012 and its participation in the debt exchange program in 2011 are still consistent terms and conditions of the lease agreements, there will be no transfer of ownership of assets to the Group at the end with its business model of managing financial assets to collect contractual cash flows. of the lease term. The Group has determined that all significant risks and rewards of ownership are retained by the respective lessors. Thus, the leases are classified as operating leases (see Note 25). e) Cash flow characteristics test Where the financial assets are classified as at amortized cost, the Group assesses whether the contractual terms of d) Business model for managing financial assets these financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the Change in the Business Model principal outstanding, with interest representing time value of money and credit risk associated with the principal Under PFRS 9, the Group can only reclassify financial assets if the objective of its business model for managing those amount outstanding. The assessment as to whether the cash flows meet the test is made in the currency in which financial assets changes. the financial asset is denominated. Any other contractual term that changes the timing or amount of cash flows (unless it is a variable interest rate that represents time value of money and credit risk) does not meet the amortized cost In 2012, management deemed it necessary to change the way it manages its investment securities because of criteria. significant changes in its strategic plans, funding structure and cash flow profile brought about by the Parent Company’s IPO and its branch expansion program. Management considered the previous model not adequate to capture the fast Estimates evolution of the Parent Company’s business strategies. Prior to the change, the Parent Company’s business model for a) Impairment of financial assets at amortized cost the financial assets carried at amortized cost was focused on minimizing, if not to close, the maturity gap in its The Group reviews its loans and receivables at each statement of financial position date to assess whether impairment statement of financial position by matching core deposits, taken from the longest tenor bucket of the maturity gap, loss should be recorded in the statement of income. In particular, judgment by management is required in the with longer termed debt instruments. In 2012, the Parent Company’s business model was revised and now focuses estimation of the amount and timing of future cash flows when determining the impairment loss. Such estimates are on asset-liability management based on the Parent Company’s maximum cumulative outflow and expansion of the based on assumptions about a number of factors and actual results may differ, resulting in future changes to the Parent Company’s investment portfolios to reflect the Parent Company’s investment strategy. allowance.

The Parent Company has determined that the changes qualify as a change in business model for managing financial In addition to specific allowance against individually significant loans and receivables, the Group also makes a collective assets that would require reclassifications of certain financial assets. Accordingly, the Parent Company made certain impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, reclassifications pursuant to the new business model effective July 1, 2012, resulting in P=711.89 million of Trading have a greater risk of default than when originally granted. This collective allowance is based on any deterioration in and securities gain in the statement of income, representing the difference between the aggregate amortized cost of the internal rating of the loan or investment since it was granted or acquired. These internal ratings take into certain securities amounting to P=5.58 billion and their aggregate fair value of P=6.29 billion at the reclassification date. consideration factors such as any deterioration in country risk, industry and technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows. Sale of Investment Securities at Amortized Cost The Parent Company’s business model allows for financial assets to be held to collect contractual cash flows even The carrying values of investment securities and loans and receivables and the related allowance for credit and when sales of certain financial assets occur. PFRS 9, however, emphasizes that if more than an infrequent sale is impairment losses of the Group and of the Parent Company are disclosed in Notes 8 and 9, respectively. made out of a portfolio of financial assets carried at amortized cost, the entity should assess whether and how such sales are consistent with the objective of collecting contractual cash flows. In making this judgment, the Parent b) Fair values of financial instruments Company considers the following: The fair values of derivatives that are not quoted in active markets are determined using valuation techniques. Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified • sales or derecognition of debt instrument under any of the circumstances spelled out under paragraph 7, Section 2 personnel independent of the area that created them. All models are reviewed before they are used, and models are of BSP Circular No. 708, Series of 2011; calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, the models • sales in preparation for funding a potential aberrant behavior in the depositors’ withdrawal pattern triggered by use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations news of massive withdrawals or massive withdrawal already experienced by other systemically important banks in require management to make estimates. Changes in assumptions about these factors could affect reported fair value the industry; of financial instruments. • sales attributable to an anticipated or in reaction to major events in the local and/or international arena that may adversely affect the collectability of the debt instrument and seen to prospectively affect adversely the behavior of Refer to Note 5 for the fair value measurements of financial instruments. deposits or creditors; • sales attributable to a change in the Parent Company’s strategy upon completion of the other phases of PFRS 9; and • sales that the Asset-Liability Management Committee (ALCO) deems appropriate to be consistent with managing the Parent Company’s balance sheet based upon but are not limited to the set risk limits and target ratios that have been approved by the BOD.

88 2013 ANNUAL REPORT They’ve Got Something to Talk About 89 c) Recognition of deferred tax assets As of December 31, 2013 and 2012, the carrying values of property and equipment, investment properties and other Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable income will repossessed assets and intangible assets (excluding land, goodwill and branch licenses) of the Group and of the Parent be available against which the losses can be utilized. Significant management judgment is required to determine the Company follow: amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Consolidated Parent Company 2013 2012 2013 2012 The recognized and unrecognized net deferred tax assets of the Group and of the Parent Company are disclosed in Property and equipment (Note 10) P=3,162,248 P=2,441,997 P=3,056,827 P=2,308,728 Note 23. Investment properties (Note 11) 302,374 270,518 255,451 237,585 Intangible assets (Note 12) 676,807 635,723 670,976 629,288 d) Impairment of nonfinancial assets Other repossessed assets (Note 13) 162,194 119,221 162,194 119,221 The Group assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: g) Retirement obligation • significant underperformance relative to expected historical or projected future operating results; The cost of defined benefit retirement plans and the present value of the defined benefit obligation are determined • significant changes in the manner of use of the acquired assets or the strategy for overall business; and using actuarial valuations. The actuarial valuation involves making various assumptions. These include the • significant negative industry or economic trends. determination of the discount rates, future salary increases, and mortality rates. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to The carrying values of the Group’s and of the Parent Company’s nonfinancial assets follow: changes in these assumptions. All assumptions are reviewed at each reporting date.

Consolidated Parent Company In determining the appropriate discount rate, management considers the interest rates of government bonds with 2013 2012 2013 2012 extrapolated maturities corresponding to the expected duration of the defined benefit obligation. Property and equipment (Note 10) P=3,452,741 P=2,740,689 P=3,320,631 P=2,572,532 Investment properties (Note 11) 1,006,716 937,648 811,423 730,335 The mortality rate is based on publicly available mortality tables for the Philippines and is modified accordingly with Branch licenses (Note 12) 1,662,200 1,447,400 1,036,800 822,000 estimates of mortality improvements. Future salary increases are based on expected future inflation rates. Goodwill (Note 12) 1,316,728 1,316,728 919,254 919,254 Capitalized software (Note 12) 522,128 472,690 516,297 466,255 The present value of the defined benefit obligation of the Group and of the Parent Company and details about the Core deposits (Note 12) 20,891 26,046 20,891 26,046 assumptions used are disclosed in Note 24. Customer relationship (Note 12) 133,788 136,987 133,788 136,987 Other repossessed assets (Note 13) 162,194 119,221 162,194 119,221

4. Financial Risk Management Objectives and Policies e) Impairment of Goodwill The Group determines whether goodwill is impaired at least on an annual basis. Goodwill is written down for Risk Management impairment where the net present value of the forecasted future cash flows from the CGU is insufficient to support its To ensure that corporate goals and objectives and business and risk strategies are achieved, the Parent Company utilizes carrying value. The Group has used the cost of equity as the discount rate for the value in use (VIU) computation. a risk management process that is applied throughout the organization in executing all business activities. Employees’ The Group determined the cost of equity using capital asset pricing model. functions and roles fall into one of the three categories where risk must be managed in the business units, operating units and governance units. Future cash flows from the CGU are estimated based on the theoretical annual income of the CGUs. Average growth rate was derived from the average increase in annual income during the last 5 years. The Parent Company’s activities are principally related to the use of financial instruments and are exposed to credit risk, liquidity risk, operational risk and market risk, the latter being subdivided into trading and non-trading risks. Forming part of a The recoverable amount of the CGU has been determined based on a VIU calculation using cash flow projections coherent risk management system are the risk concepts, control tools, analytical models, statistical methodologies, historical from financial budgets approved by the BOD covering a five-year period. The pre-tax discount rate applied to cash researches and market analysis, which are being employed by the Parent Company. These tools support the key risk process flow projections is 13.09% and 12.71% as of December 31, 2013 and 2012, respectively. Key assumptions in VIU that involves identifying, measuring, controlling and monitoring risks. calculation of CGUs are most sensitive to the following assumptions: a) interest margin; b) discount rates; c) market share during the budget period; and d) projected growth rates used to extrapolate cash flows beyond the budget Risk Management Structure period. a. Board of Directors (the Board or BOD) The Parent Company’s risk culture is practiced and observed across the Group putting the prime responsibility on the The carrying values of goodwill of the Group and of the Parent Company are disclosed in Note 12. BOD. It establishes the risk culture and the risk management organization and incorporates the risk process as an essential part of the strategic plan of the Group. The BOD approves the Parent Company’s articulation of risk appetite f) Estimated useful lives of property and equipment, investment properties, other repossessed assets and intangible which is used internally to help management understand the tolerance for risk in each of the major risk categories, its assets (excluding land, goodwill and branch licenses) measurement and key controls available that influence the Parent Company’s level of risk taking. All risk management The Group reviews on an annual basis the estimated useful lives of property and equipment, investment properties, policies and policy amendments, risk-taking limits such as but not limited to credit and trade transactions, market risk other repossessed assets and intangible assets based on expected asset utilization as anchored on business plans limits, counterparty limits, trader’s limits and activities are based on the Parent Company’s established approving and strategies that also consider expected future technological developments and market behavior. It is possible that authorities which are approved by the Parent Company’s BOD. At a high level, the BOD also approves the Parent future results of operations could be materially affected by changes in these estimates brought about by changes in Company’s framework for managing risk. the factors mentioned. A reduction in the estimated useful lives of property and equipment, investment properties, other repossessed assets and intangible assets would decrease their respective balances and increase the recorded b. Executive Committee depreciation and amortization expense. This is a board level committee, which reviews the bank-wide credit strategy, profile and performance. It approves the credit risk-taking activities based on the Parent Company’s established approving authorities and likewise reviews and endorses credit-granting activities, including the Internal Credit Risk Rating System. All credit proposals beyond the credit approving limit of the Loan and Investments Committee passes through this committee for final approval.

90 2013 ANNUAL REPORT They’ve Got Something to Talk About 91 c. Asset-Liability Management Committee (ALCO) i. Internal Audit Division (IAD) ALCO, a management level committee, meets on a weekly basis and is responsible for the over-all management of IAD provides an independent assessment of the Parent Company’s management and effectiveness of existing the Parent Company’s market, liquidity, and financial position related risks. It monitors the Parent Company’s internal control systems through adherence testing of processes and controls across the organization. The IAD audits liquidity position and reviews the impact of strategic decisions on liquidity. It is responsible for managing liquidity risks risk management processes throughout the Parent Company annually or in a cycle depending on the latest audit and ensuring exposures remain within established tolerance levels. The ALCO’s primary responsibilities include, among rating. It employs a risk-based audit approach that examines both the adequacy of the procedures and the Parent others, (a) ensuring that the Parent Company and each business unit holds sufficient liquid assets of appropriate quality Company’s compliance with the procedures. It discusses the results of all assessments with management, and reports and in appropriate currencies to meet short-term funding and regulatory requirements, (b) managing financial position its findings and recommendations to the Audit Committee which in turn, conducts the detailed discussion of the and ensuring that business strategies are consistent with its liquidity, capital and funding strategies, (c) establishing findings and recommendations during its regular meetings. IAD’s activities are suitably designed to provide the BOD asset and/or liability pricing policies that are consistent with the financial position objectives, (d) recommending market with reasonable assurance that significant financial and operating information is materially complete, reliable and and liquidity risk limits to the Risk Management Committee and BOD and (e) approving the assumptions used in accurate; internal resources are adequately protected; and employee performance is in compliance with the Parent contingency and funding plans. It also reviews cash flow forecasts, stress testing scenarios and results, and Company’s policies, standards, procedures and applicable laws and regulations. implements liquidity limits and guidelines. j. Compliance Division d. Risk Management Committee (RMC) Compliance Division is responsible for reviewing any legal or regulatory matters that could have a significant impact on This board level committee oversees the effectiveness of the Parent Company’s over-all risk management strategies, the Parent Company’s financial statements, the Parent Company’s compliance with applicable laws and regulations, practices and policies. The RMC reviews and approves principles, policies, strategies, processes and control frameworks and inquiries received from regulators or governmental agencies. It reviews the effectiveness and adequacy of the pertaining to risk management and recommends to the BOD, as necessary, changes in strategies and amendments in system for monitoring compliance with laws and regulations and the results of management’s investigation and follow- these policies. The RMC also evaluates the Parent Company’s risk exposures and measures its impact on the Parent up (including disciplinary action) for any instances of noncompliance. Company, evaluates the magnitude, direction and distribution of risks across the Parent Company and uses this as basis in the determination of risk tolerances that it subsequently recommends to the BOD for approval. It reports to Credit Risk the BOD the Parent Company’s overall risk exposures and the effectiveness of its risk management practices and Credit risk refers to the potential loss of earnings or capital arising from an obligor/s, customer/s or counterparty’s failure to processes recommending further policy revisions as necessary. perform and/or to meet the terms of any contract with the Parent Company. Credit risks may last for the entire tenor and set at the full amount of a transaction and in some cases may exceed the original principal exposures. The risk may arise from e. Loan and Investments Committee lending, trade financing, trading, investments and other activities undertaken by the Parent Company. To identify and assess This committee is headed by the Chairman of the Parent Company whose primary responsibility is to oversee the this risk, the Parent Company has a structured and standardized credit rating, and approval process according to the borrower Parent Company’s credit risk-taking activities and overall adherence to the credit risk management framework, review or business and/or product segment. For large corporate credit transactions, the Parent Company has a comprehensive business/ credit risk strategies, quality and profitability of the Parent Company’s credit portfolio and recommend procedure for credit evaluation, risk assessment and well-defined concentration limits, which are established for each type of changes to the credit evaluation process, credit risk acceptance criteria and the minimum and target return per credit borrower. At the portfolio level, which may be on an overall or by product perspective, RMD manages the Parent Company’s or investment transaction. All credit risk-taking activities based on the Parent Company’s established approving credit risk. authorities are evaluated and approved by this committee. It establishes infrastructure by ensuring business units have the right systems and adequate and competent manpower support to effectively manage its credit risk. Credit concentration Excessive concentration of lending plays a significant role in the weakening of asset quality. The Parent Company reduces f. Audit Committee (Audit Com) this risk by diversifying its loan portfolio across various sectors and borrowers. The Parent Company believes that good The Audit Com assists the BOD in fulfilling its oversight responsibilities for the financial reporting process, the diversification across economic sectors and geographic areas, among others, will enable it to ride through business cycles system of internal control, the audit process, and the Parent Company’s process for monitoring compliance with laws without causing undue harm to its asset quality. and regulation and the code of conduct. It retains oversight responsibilities for operational risk, the integrity of the Parent Company’s financial statements, compliance, legal risk and overall policies and practices relating to risk RMD reviews the Parent Company’s loan portfolio in line with the Parent Company’s policy of not having significant management. It is tasked to discuss with management the Parent Company’s major risk exposures and ensures concentrations of exposure to specific industries or group of borrowers. Management of concentration of risk is by client/ accountability on the part of management to monitor and control such exposures including the Parent Company’s risk counterparty and by industry sector. For risk concentration monitoring purposes, the financial assets are broadly categorized assessment and risk management policies. The Audit Com discusses with management and the independent auditor into loans and receivables, loans and advances to banks, and investment securities. RMD ensures compliance with BSP’s the major issues regarding accounting principles and financial statement presentation, including any significant changes limit on exposure to any single person or group of connected persons by closely monitoring large exposures and top 20 in the Parent Company’s selection or application of accounting principles; and major issues as to the adequacy of the borrowers for both single and group accounts. Parent Company’s internal controls; and the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Parent Company. Aside from ensuring compliance with BSP’s limit on exposures to any single person or group of connected persons, it is the Parent Company’s policy to keep the expected loss (determined based on the credit risk rating of the account) of large g. Corporate Governance and Compliance Committee (CGCC) exposure accounts to, at most, one percent (1.50 %) of their aggregate outstanding balance. This is to maintain the quality of The CGCC is responsible for ensuring the BOD’s effectiveness and due observance of corporate governance principles the Parent Company’s large exposures. With this, accounts with better risk grades are given priority in terms of being granted and guidelines. It reviews and assesses the adequacy of the CGCC’s charter and Corporate Governance Manual and a bigger share in the Parent Company’s loan facilities. r ecommends changes as necessary. It oversees the implementation of the Parent Company’s compliance program and ensures compliance issues are resolved expeditiously. It assists Board members in assessing whether the Parent Aligned with the Manual of Regulations for Banks definition, the Parent Company considers its loan portfolio concentrated if Company is managing its compliance risk effectively and ensures regular review of the compliance program. it has exposures of more than thirty percent (30.00%) to a particular industry.

h. Risk Management Division (RMD) RMD performs an independent risk governance function within the Parent Company. RMD is tasked with identifying, measuring, controlling and monitoring existing and emerging risks inherent in the Parent Company’s overall portfolio (on- or off-balance sheet). RMD develops and employs risk assessment tools to facilitate risk identification, analysis and measurement. It is responsible for developing and implementing the framework for policies and practices to assess and manage enterprise-wide market, credit, operational, and all other risks of the Parent Company.

It also develops and endorses risk tolerance limits for BOD approval, as endorsed by the RMC, and monitors compliance with approved risk tolerance limits. Finally, it regularly apprises the BOD, through the RMC, the results of its risk monitoring.

92 2013 ANNUAL REPORT They’ve Got Something to Talk About 93 Credit concentration profile as of December 31, 2013 and 2012 Large exposures and top 20 borrowers Maximum credit risk exposures The table below summarizes the large exposures and top 20 borrowers of the Parent Company: The following table shows the Group’s and the Parent Company’s maximum exposure to credit risk after taking into account any collateral held or other credit enhancements: 2013 Large Exposures Consolidated Top 20 Borrowers 2013 2012 Single Group Single Group Maximum Financial Maximum Financial Borrowers Borrowers Borrowers Borrowers Carrying Fair Value Exposure to Effect of Carrying Fair Value Exposure to Effect of Aggregate Exposure (in billions) P=20.03 P=24.09 P=13.83 P=16.49 Amount of Collateral Amount of Collateral Credit Risk Collateral Credit Risk Collateral Composite Risk Rating 3.25 3.40 2.80 2.93 Loans and receivables Total Expected Loss/Aggregate Exposure 0.68% 0.82% 0.54% 0.58% Receivables from customers Corporate lending P=47,588,271 P=13,143,982 P=38,940,835 P= 8,647,436 P=31,720,228 P=6,422,793 P=25,297,435 P=6,422,793 2012 44,871,825 20,544,130 38,413,862 6,457,963 38,165,990 14,304,823 31,119,961 7,046,029 Consumer lending Top 20 Borrowers Large Exposures P=92,460,096 P=33,688,112 P=77,354,697 P=15,105,399 P=69,886,218 P=20,727,616 P=56,417,396 P=13,468,822 Single Group Single Group Borrowers Borrowers Borrowers Borrowers Parent Company Aggregate Exposure (in billions) P=15.63 P=17.50 P= 9 . 5 8 P=11.41 2013 2012 Composite Risk Rating 3.71 3.79 3.87 3.72 Maximum Financial Maximum Financial 0.81% 0.90% 0.88% 0.81% Carrying Fair Value Exposure to Effect of Carrying Fair Value Exposure to Effect of Total Expected Loss/Aggregate Exposure Amount of Collateral Credit Risk Collateral Amount of Collateral Credit Risk Collateral Loans and receivables Receivables from As of December 31, 2013 and 2012 the maximum credit exposure to any client or counterparty is about P= 4.46 billion and customers P= 3.87 billion, respectively. The credit exposures, after due consideration of the allowed credit enhancements, of the Parent Corporate lending P=47,588,271 P=13,143,982 P=38,940,835 P=8,647,436 P=31,720,228 P=6,422,793 P=25,297,435 P=6,422,793 Consumer lending 41,887,643 20,543,332 38,299,448 3,588,195 35,734,037 13,930,516 29,062,315 6,671,722 Company, are all compliant with the regulatory single borrower’s limit and considered to be the maximum credit exposure to P=89,475,914 P=33,687,314 P=77,240,283 P=12,235,631 P=67,454,265 P=20,353,309 P=54,359,750 P=13,094,515 any client or counterparty.

Concentration by industry For off-balance sheet items, the figures presented below summarize the Group’s and the Parent Company’s maximum An industry sector analysis of the financial assets of the Group follows: exposure to credit risk: 2013 Consolidated Loans and 2013 2012 Loans and Advances to Investment Receivables* Securities*** Total Credit Equivalent Credit Risk Net Credit Credit Equivalent Credit Risk Net Credit Banks** Amount Mitigation Exposure Amount Mitigation Exposure Financial intermediaries P=27,311,023 P=23,564,450 P=11,039,756 P=61,915,229 Real estate, renting and business activity 24,897,531 − − 24,897,531 Off-balance sheet items Private households with employed persons 61,426,923 − − 61,426,923 Direct credit substitutes P=400,119 P= − P=400,119 P=214,973 P= − P=214,973 Transaction-related Wholesale and retail trade, repair of motor vehicles 15,129,128 − − 15,129,128 contingencies 711,373 − 711,373 254,741 − 254,741 Manufacturing 14,848,725 − − 14,848,725 Trade-related contingencies Agriculture, fisheries and forestry 1,424,364 − − 1,424,364 arising from movement of Transportation, storage and communication 1,632,873 − − 1,632,873 goods and commitments Others**** 33,371,803 − − 33,371,803 with an original maturity 180,042,370 23,564,450 11,039,756 214,646,576 of up to one (1) year 419,995 − 419,995 221,363 − 221,363 Allowance for credit losses (Note 14) (4,002,355) − − (4,002,355) P=1,531,487 P= − P=1,531,487 P=691,077 P= − P=691,077 P=176,040,015 P=23,564,450 P=11,039,756 P=210,644,221

* Includes commitments and contingent accounts. Parent Company ** Comprised of Other cash items, Due from BSP, Due from other banks and IBLR. *** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost. 2013 2012 **** Pertains to unclassified loans and receivables, commitments and contingent accounts. Credit Equivalent Credit Risk Net Credit Credit Equivalent Credit Risk Net Credit Amount Mitigation Exposure Amount Mitigation Exposure Off-balance sheet items Direct credit substitutes P=400,119 P= − P=400,119 P=214,973 P= − P=214,973 Transaction-related contingencies 711,373 − 711,373 254,741 − 254,741 Trade-related contingencies arising from movement of goods and commitments with an original maturity of up to one (1) year 419,995 − 419,995 221,363 − 221,363 P=1,531,487 P= − P=1,531,487 P=691,077 P= − P=691,077

94 2013 ANNUAL REPORT They’ve Got Something to Talk About 95 2012 Collateral and other credit enhancements Loans and Collaterals are taken into consideration during the loan application process as they offer an alternative way of collecting Loans and Advances to Investment from the client should a default occur. The percentage of loan value attached to the collateral offered is part of the Parent Receivables* Banks** Securities*** Total Company’s lending guidelines. Such percentages take into account safety margins for foreign exchange rate exposure/ Financial intermediaries P=36,928,126 P=24,089,624 P=13,890,812 P=74,908,562 fluctuations, interest rate exposure, and price volatility. Real estate, renting and business activity 14,725,528 − − 14,725,528 Private households with employed persons 49,136,103 − − 49,136,103 Collaterals are valued according to existing credit policy standards and, following the latest appraisal report, serve as the Wholesale and retail trade, repair of motor vehicles 13,922,230 − − 13,922,230 basis for the amount of the secured loan facility. Manufacturing 6,590,972 − − 6,590,972 Agriculture, fisheries and forestry 4,911,807 − − 4,911,807 Premium security items are collaterals that have the effect of reducing the estimated credit risk for a facility. The primary Transportation, storage and communication 1,955,996 − − 1,955,996 consideration for enhancements falling under such category is the ease of converting them to cash. Others**** 26,480,558 − − 26,480,558 154,651,320 24,089,624 13,890,812 192,631,756 The Parent Company is not permitted to sell or re-pledge the collateral in the absence of default by the owner of the Allowance for credit losses (Note 14) (3,154,065) − − (3,154,065) collateral. It is the Parent Company’s policy to dispose foreclosed assets in an orderly fashion. The proceeds of the sale of P=151,497,255 P=24,089,624 P=13,890,812 P=189,477,691 the foreclosed assets, included under Investment Properties, are used to reduce or repay the outstanding claim. In general, * Includes commitments and contingent accounts. the Parent Company does not occupy repossessed properties for business use. ** Comprised of Other cash items, Due from BSP, Due from other banks and IBLR. *** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost. As part of the Parent Company’s risk control on security/collateral documentation, standard documents are made for **** Pertains to unclassified loans and receivables, commitments and contingent accounts. each security type and deviation from the pro-forma documents are subject to Legal Services Division’s approval prior to acceptance.

An industry sector analysis of the financial assets of the Parent Company follows: Credit collaterals profile 2013 The table below provides the collateral profile of the outstanding loan portfolio of the Parent Company: Loans and Loans and Advances to Investment Receivables* Banks** Securities*** Total Security Corporate Loans Consumer Loans Financial intermediaries P=27,250,596 P=23,133,121 P=11,039,343 P=61,423,060 2013 2012 2013 2012 24,858,454 − − 24,858,454 Real estate, renting and business activity REM* 11.13% 12.53% 14.80% 16.50% 61,397,521 − − 61,397,521 Private households with employed persons Other Collateral** 24.50% 13.83% 23.74% 33.96% 15,016,409 − − 15,016,409 Wholesale and retail trade, repair of motor vehicles Unsecured 64.37% 73.64% 61.46% 49.54% Manufacturing 14,827,935 − − 14,827,935 605,639 − − 605,639 * Real Estate Mortgage Agriculture, fisheries and forestry ** Consists of government securities, stocks and bonds, hold-out on deposits, assignment of receivables etc. Transportation, storage and communication 1,628,341 − − 1,628,341 Others**** 30,777,047 − − 30,777,047 176,361,942 23,133,121 11,039,343 210,534,406 As for the computation of credit risk weights, collaterals of the back-to-back and Home Guaranty covered loans, and Allowance for credit losses (Note 14) (3,975,337) − − (3,975,337) Philippine sovereign guarantees are the only credit risk mitigants considered as eligible. P=172,386,605 P=23,133,121 P=11,039,343 P=206,559,069 * Includes commitments and contingent accounts. Internal Credit Risk Rating System ** Comprised of Other cash items, Due from BSP, Due from other banks and IBLR. *** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost. The Parent Company employs a credit scoring system for all corporate borrowers to assess risks relating to the borrower **** Pertains to unclassified loans and receivables, commitments and contingent accounts. and the loan exposure. Borrower risk is evaluated by considering (a) quantitative factors under financial condition and (b) qualitative factors, such as management quality and industry outlook.

2012 Financial condition assessment focuses on profitability, liquidity, capital adequacy, sales growth, production efficiency and Loans and leverage. Management quality determination is based on the Parent Company’s strategies, management competence and Loans and Advances to Investment skills and management of banking relationship. On the other hand, industry prospect is evaluated based on its importance to Receivables* Banks** Securities*** Total the economy, growth, industry structure and relevant government policies. Based on these factors, each borrower is assigned Financial intermediaries P=36,870,604 P=23,910,486 P=13,890,402 P=74,671,492 a Borrower Risk Rating (BRR), an 11-scale scoring system that ranges from 1 to 10, including SBL. In addition to the BRR, Real estate, renting and business activity 14,698,962 − − 14,698,962 the Parent Company assigns a Facility Risk Rating (FRR) to determine the risk of the prospective (or existing) exposure with Private households with employed persons 49,108,024 − − 49,108,024 respect to each credit facility that it applied for (or under which the exposure is accommodated). The FRR focuses on the Wholesale and retail trade, repair of motor vehicles 13,805,636 − − 13,805,636 quality and quantity of the collateral applicable to the underlying facility, independent of borrower quality. Consideration is Manufacturing 6,564,489 − − 6,564,489 given to the availability and amount of any collateral and the degree of control, which the lender has over the collateral. FRR Agriculture, fisheries and forestry 4,312,959 − − 4,312,959 applies both to balance sheet facilities and contingent liabilities. One FRR is determined for each individual facility taking Transportation, storage and communication 1,949,884 − − 1,949,884 into account the different security arrangements or risk influencing factors to allow a more precise presentation of risk. A Others**** 24,776,405 − − 24,776,405 borrower with multiple facilities will have one BRR and multiple FRRs. The combination of the BRR and the FRR results to 152,086,963 23,910,486 13,890,402 189,887,851 the Adjusted Borrower Risk Rating (ABRR). Allowance for credit losses (Note 14) (3,132,624) − − (3,132,624) P=148,954,339 P=23,910,486 P=13,890,402 P=186,755,227 The credit rating for each borrower is reviewed annually. A more frequent review is warranted in cases where the borrower * Includes commitments and contingent accounts. has a higher risk profile or when there are extraordinary or adverse developments affecting the borrower, the industry and/or ** Comprised of Other cash items, Due from BSP, Due from other banks and IBLR. the Philippine economy. *** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost. **** Pertains to unclassified loans and receivables, commitments and contingent accounts.

96 2013 ANNUAL REPORT They’ve Got Something to Talk About 97 An industry sector analysis of the financial assets of the Parent Company follows: Rating Description Account/Borrower Characteristics 8 Substandard • collectability of principal or interest becomes questionable by reason of Rating Description Account/Borrower Characteristics adverse developments or important weaknesses in financial cover 1 Excellent • low probability of going into default within the coming year; very • negative cash flows from operations and negative interest coverage high debt service capacity and balance sheets show no sign of any • past due for more than 90 days weakness • there exists the possibility of future loss to the Parent Company unless • has ready access to adequate funding sources given closer supervision • high degree of stability, substance and diversity 9 Doubtful • unable or unwilling to service debt over an extended period of time and • of the highest quality under virtual economic conditions near future prospects of orderly debt service are doubtful 2 Strong • low probability of going into default in the coming year • with non-performing loan (NPL) status • access to money markets is relatively good • previously rated ‘Substandard’ by the BSP • business remains viable under normal market conditions • loss on credit exposure unavoidable • strong market position with a history of successful financial performance 10 Loss • totally uncollectible • financials show adequate cash flows for debt servicing and generally • prospect of re-establishment of creditworthiness and debt service is conservative balance sheets remote 3 Good • sound but may be susceptible, to a limited extent, to cyclical changes • lender shall take or has taken title to the assets and is preparing in the markets in which they operate foreclosure and/or liquidation although partial recovery may be obtained • financial performance is good and capacity to service debt remains in the future comfortable • considered uncollectible or worthless and of such little value that • cash flows remain healthy and critical balance sheet ratios are at par continuance as bankable assets is not warranted although the loans may with industry norms have some recovery or salvage value • reported profits in the past three years and expected to sustain profitability in the coming year It is the Parent Company’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates 4 Satisfactory • clear risk elements exist and probability of going into default is somewhat a focused management of the applicable risk and the comparison of credit exposures across all lines of business, geographic greater, as reflected in the volatility of earnings and overall performance regions and products. The rating system is supported by a variety of financial analytics, combined with processed market • normally have limited access to public financial markets information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the • able to withstand normal business cycles, but expected to deteriorate various categories and are derived in accordance with the Parent Company’s rating policy. The risk ratings are assessed and beyond acceptable levels under prolonged unfavorable economic period updated regularly. • combination of reasonably sound asset and cash flow protection 5 Acceptable • risk elements for the Parent Company are sufficiently pronounced, but Credit Quality Profile as of December 31, 2013 and 2012 would still be able to withstand normal business cycles External ratings • immediate deterioration beyond acceptable levels is expected given The Parent Company also uses external ratings, such as Standard & Poor’s, Moody’s, and Fitch, to evaluate its counterparties prolonged unfavorable economic period and in its assignment of credit risk weights to its banking book exposures. Transactions falling under this category are • there is sufficient cash flow either historically or expected in the future in normally of the following nature: placements with other banks, money market lending, debt security investments, and to spite of economic downturn combined with asset protection some extent, equity security investments. 5B Acceptable • financial condition hard to ascertain due to weak validation of financial statements coupled by funding leakages to other business interests Investments and financial securities whose financial condition is generally unknown The table below shows credit quality, based on external ratings, per class of financial assets that are neither past due nor • continuous decline in revenues and margins due to competition; impaired of the Group: increasing debt levels not commensurate to growth in revenues and 2013 funding requirements AA/A BB/B Unrated Total • thin margin business with banks financing bulk of working capital and Due from BSP P=18,537,655 P= − P= − P=18,537,655 capex requirements coupled by substantial dividend pay-outs Due from other banks 1,309,675 375,143 6 7, 0 0 6 1,751,824 • chronically tight cashflows with operating income negative or barely IBLR 1,340,729 1,775,800 – 3,116,529 enough for debt servicing Financial assets at FVTPL • lines with banks maxed out and availments evergreen with minimal Government securities 691,437 – – 691,437 payments made over time or with past record of past due loans with Private bonds 74,483 376,855 92,288 543,626 other banks, cancelled credit cards and court cases Equity securities 190,915 – 522,725 713,640 6 Watchlist • affected by unfavorable industry or company-specific risk factors 956,835 376,855 615,013 1,948,703 • operating performance and financial strength may be marginal and ability Investment securities at amortized cost to attract alternative sources of finance is uncertain Government securities 7, 6 6 7, 2 5 4 – – 7, 6 6 7, 2 5 4 • difficulty in coping with any significant economic downturn; some Private bonds 928,394 484,259 413 1,413,066 payment defaults encountered 8,595,648 484,259 413 9,080,320 • net losses for at least two consecutive years Financial assets at FVTOCI – 7, 4 8 6 7, 4 8 6 7 Special Mention • ability or willingness to service debt are in doubt Quoted equity securities – • weakened creditworthiness Unquoted equity securities 127 – 3,120 3,247 • expected to experience financial difficulties, putting the Parent Company’s 127 – 10,606 10,733 exposure at risk P=30,740,669 P=3,012,057 P=693,038 P=34,445,764

98 2013 ANNUAL REPORT They’ve Got Something to Talk About 99 2012 The tables below show the credit quality, based on the credit rating system, by class of loans and receivables that are neither AA/A BB/B Unrated Total past due nor impaired of the Group: 2013 Due from BSP P= − P=2 1,855,275 P= − P=21,855,275 Due from other banks 585,695 856,812 195,410 1,637,917 Standard Substandard IBLR 582,648 − − 582,648 High Grade Grade Grade Unrated Total Financial assets at FVTPL Receivables from customers Government securities 215,853 1,590,086 − 1,805,939 Corporate lending P=21,207,719 P=22,489,408 P= − P= − P=43,697,127 Private bonds − 1,072,180 134,542 1,206,722 Consumer lending 5,933,895 20,580,491 19,207,950 − 45,722,336 Equity securities 120,627 999,998 127,039 1,247,664 27,141,614 43,069,899 19,207,950 − 89,419,463 336,480 3,662,264 261,581 4,260,325 Unquoted debt securities − − − 208,132 208,132 Investment securities at amortized cost Accounts receivable 9,064 7, 5 4 8 781 860,571 877,964 Government securities 249,698 8,003,549 − 8,253,247 Accrued interest receivable 51,290 3,435 270 622,055 677,050 Private bonds 865,932 51,194 450,132 1,367,258 Sales contract receivable 2,247 421 2,797 162,797 168,262 1,115,630 8,054,743 450,132 9,620,505 62,601 11,404 3,848 1,853,555 1,931,408 Financial assets at FVTOCI P=27,204,215 P=43,081,303 P=19,211,798 P=1,853,555 P=91,350,871 Quoted equity securities − − 6,735 6,735 Unquoted equity securities − 127 3,120 3,247 − 127 9,855 9,982 2012 P=2,620,453 P=34,429,221 P= 9 1 6 , 9 7 8 P=37,966,652 Standard Substandard High Grade Grade Grade Unrated Total Receivables from customers The table below shows credit quality, based on external ratings, per class of financial assets that are neither past due nor Corporate lending P=15,218,079 P=15,911,806 P=104,912 P=17,755 P=31,252,552 impaired of the Parent Company: 1,997,023 16,462,502 16,809,692 188,899 35,458,116 2013 Consumer lending 17,215,102 32,374,308 16,914,604 206,654 66,710,668 AA/A BB/B Unrated Total Unquoted debt securities − − − 207,935 207,935 Due from BSP P=18,404,125 P= − P= − P=18,404,125 Accounts receivable − − − 280,614 280,614 Due from other banks 1,309,675 227,723 6 7, 0 0 6 1,604,404 Accrued interest receivable − − − 614,635 614,635 IBLR 1,340,729 1,775,800 − 3,116,529 Sales contract receivable − − − 119,534 119,534 Financial assets at FVTPL − − − 1,222,718 1,222,718 Government securities 691,437 − − 691,437 P=17,215,102 P=32,374,308 P=16,914,604 P=1,429,372 P=67,933,386 Private bonds 74,483 376,855 92,288 543,626 Equity securities 190,915 − 522,725 713,640 956,835 376,855 615,013 1,948,703 The tables below show the credit quality, based on the credit rating system, by class of loans and receivables that are neither Investment securities at amortized cost past due nor impaired of the Parent Company: Government securities 7, 6 6 7, 2 5 4 − − 7, 6 6 7, 2 5 4 2013 928,394 484,259 − 1,412,653 Private bonds Standard Substandard 8,595,648 484,259 − 9,079,907 High Grade Grade Grade Unrated Total Financial assets at FVTOCI Quoted equity securities − − 7, 4 8 6 7, 4 8 6 Receivables from customers P=21,207,719 P=22,489,408 P= − P= − P=43,697,127 Unquoted equity securities 127 − 3,120 3,247 Corporate lending 127 − 10,606 10,733 Consumer lending 2,820,024 20,556,206 19,196,101 − 42,572,331 P=30,607,139 P=2,864,637 P=692,625 P=34,164,401 24,027,743 43,045,614 19,196,101 − 86,269,458 Unquoted debt securities − − − 208,132 208,132 2012 Accounts receivable − − − 860,571 860,571 Accrued interest receivable − − − 622,055 622,055 AA/A BB/B Unrated Total Sales contract receivable − − − 162,797 162,797 Due from BSP P= − P=21,789,239 P= − P=21,789,239 − − − 1,853,555 1,853,555 Due from other banks 585,695 743,71 0 195,410 1,524,815 P=24,027,743 P=43,045,614 P=19,196,101 P=1,853,555 P=88,123,013 IBLR 582,648 − − 582,648 Financial assets at FVTPL 2012 Government securities 215,853 1,590,086 − 1,805,939 Standard Substandard Private bonds − 1,072,180 134,542 1,206,722 Grade Grade Equity securities 120,627 999,998 127,039 1,247,664 High Grade Unrated Total 336,480 3,662,264 261,581 4,260,325 Receivables from customers Investment securities at amortized cost Corporate lending P=15,218,079 P=15,911,806 P=104,912 P=17,755 P=31,252,552 Government securities 249,698 8,003,549 − 8,253,247 Consumer lending 264,616 16,462,502 16,809,692 − 33,536,810 Private bonds 865,932 51,195 449,721 1,366,848 15,482,695 32,374,308 16,914,604 17,755 64,789,362 1,115,630 8,054,744 449,721 9,620,095 Unquoted debt securities − − − 207,867 207,867 Financial assets at FVTOCI Accounts receivable − − − 1,096,359 1,096,359 Quoted equity securities − − 6,735 6,735 Accrued interest receivable − − − 531,428 531,428 Unquoted equity securities − 127 3,120 3,247 Sales contract receivable − − − 102,886 102,886 − 127 9,855 9,982 − − − 1,938,540 1,938,540 P=2,620,453 P=34,250,084 P=916,567 P=3 7,7 8 7,1 0 4 P=15,482,695 P=32,374,308 P=16,914,604 P=1,956,295 P=66,727,902

100 2013 ANNUAL REPORT They’ve Got Something to Talk About 101 Borrowers with unquestionable repaying capacity and to whom the Parent Company is prepared to lend on an unsecured The estimation of the impaired consumer products’ estimated loss is based on three major concepts: age buckets, basis, either partially or totally, are generally rated as High Grade borrowers. Included in the High Grade category are probability of default and recoverability. Per product, exposures are categorized according to their state of delinquency those accounts that fall under ‘Excellent’, ‘Strong’, ‘Good’ and ‘Satisfactory’ categories under ICRRS (with rating of 1-4). - (1) current and (2) past due (which is subdivided into 30, 60, 90, 120, 150, 180 and more than 180 days past due). Auto, housing and salary loans have an additional bucket for its items in litigation accounts. The Parent Company Standard rated borrowers normally require tangible collateral, such as real estate mortgage (REM), to either fully or partitions its exposures as it recognizes that the age buckets have different rates and/ or probabilities of default. The partially secure the credit facilities as such accounts indicate a relatively higher credit risk than those considered as High initial estimates of losses per product due to default are then adjusted based on the recoverability of cash flows, to Grade. Included in Standard Grade category are those accounts that fall under ‘Acceptable’, ‘Watchlist’ and ‘Special calculate the expected loss of the Parent Company. Auto and housing loans consider the proceeds from the eventual sale mention’ categories under ICRRS (with rating of 5-7). of foreclosed collaterals in approximating its recovery rate; while credit cards, salary loans and personal loans depend on the collection experience of its receivables. Further for housing loans, due to the nature of the assets offered as Substandard Grade accounts pertain to corporate accounts falling under the ‘Substandard,’ ‘Doubtful’ and ‘Loss’ categories security, and as the exposures are limited to a certain percentage of the same, this product possess the unique quality under ICRRS (with rating of 8-10) and unsecured revolving credit facilities. of obtaining full recoverability. These default and recovery rates are based on the Parent Company’s historical experience, which covers a minimum of two to three (2-3) years cycle, depending on the availability and relevance of Those accounts that are classified as unrated includes consumer loans, unquoted debt securities, accounts receivable, data. accrued interest receivable and sales contract receivable for which the Parent Company has not yet established a credit rating system. The table below shows the aging analysis of the past due but not impaired loans and receivables per class of the Group and of the Parent Company. Under PFRS 7, a financial asset is past due when a counterparty has failed to make payments when Impairment Assessment contractually due. On a regular basis, the Parent Company conducts an impairment assessment exercise to determine expected losses on its loans portfolio. Consolidated 2013 The main considerations for the loan impairment assessment include whether any payments of principal or interest are Less than 31 to 61 to 91 to More than overdue by more than 90 days or if there are any known difficulties in the cash flows of counterparties, credit rating 30 days 60 days 90 days 180 days 180 days Total downgrades, or infringement of the original terms of the contract. The Parent Company addresses impairment assessment Loans and receivables in two areas: specific or individually assessed allowances and collectively assessed allowances. Corporate lending P= − P= − P= − P= − P=77,232 P=77,232 Consumer lending – – 85,037 261,972 807,377 1,154,386 a. Specific Impairment Testing P= − P= − P=85,037 P= 2 6 1 , 9 7 2 P=884,609 P=1,231,618 Specific impairment testing is the process whereby classified accounts are individually significant subject to impairment testing. Classified accounts are past due accounts and accounts whose credit standing and/or collateral has weakened due to varying circumstances. This present status of the account may adversely affect the collection of both principal Consolidated and interest payments. 2012 Less than 31 to 61 to 91 to More than Indicators of impairment testing are past due accounts, decline in credit rating from independent rating agencies and 30 days 60 days 90 days 180 days 180 days Total recurring net losses. Loans and receivables Corporate lending P=36,152 P= − P= − P= − P= − P=36,152 The net recoverable amount is computed using the present value approach. The discount rate used for loans with Consumer lending 152,989 8,254 120,837 150,281 623,330 1,055,691 fixed and floating interest rate is the original effective interest rate and last repriced interest rate, respectively. Net P=189,141 P=8,254 P=120,837 P=150,281 P=623,330 P=1,091,843 recoverable amount is the total cash inflows to be collected over the entire term of the loan or the expected proceeds from the sale of collateral. Specific impairment testing parameters include the account information (original and outstanding loan amount), interest rate (nominal and historical effective) and the business plan. Also included are the Parent Company expected date of recovery, expected cash flows, probability of collection, and the carrying value of loan and net 2013 recoverable amount. Less than 31 to 61 to 91 to More than 30 days 60 days 90 days 180 days 180 days Total The Parent Company conducts specific impairment testing on significant classified and restructured corporate accounts. Loans and receivables P= − P= − P= − b. Collective Impairment Testing Corporate lending P= − P=77,232 P=77,232 – – 85,037 All other accounts which were not individually assessed are grouped based on similar credit characteristics and are Consumer lending 226,984 450,994 763,015 P= − P= − P=85,037 P= 2 2 6 , 9 8 4 P=840,247 collectively assessed for impairment under the Collective Impairment Testing. This is also in accordance with PAS 39, P=528,226 which provides that all loan accounts not included in the specific impairment test shall be subjected to collective testing. Parent Company Collective impairment testing of corporate accounts 2012 Corporate accounts, which are unclassified and with current status are grouped in accordance with the Parent Less than 31 to 61 to 91 to More than Company’s internal credit risk rating. Each internal credit risk rating would fetch an equivalent loss impairment where 30 days 60 days 90 days 180 days 180 days Total the estimated loss is determined in consideration of the Parent Company’s historical loss experience. Impairment loss is derived by multiplying the outstanding loan balance on a per internal credit risk rating basis against a factor rate. Loans and receivables The factor rate, which estimates the expected loss from the credit exposure, is the product of the Default Rate (DR) Corporate lending P=36,152 P= − P= − P= − P= − P=36,152 and the Loss Given Default Rate (LGDR). DR is estimated based on the 3-year historical average default experience Consumer lending 101,994 3,407 111,439 132,666 196,437 545,943 by internal credit risk rating of the Parent Company, while, LGDR is estimated based on loss experience (net of P=138,146 P=3,407 P=111,439 P=132,666 P=196,437 P=582,095 recoveries from collateral) for the same reference period. Collaterals of past due but not impaired loans mostly consist of real estate mortgage (REM) of industrial, commercial, Collective impairment testing of consumer accounts residential and developed agricultural real estate properties. Consumer accounts, both in current and past due status are collectively tested for impairment as required under PAS 39. Accounts are grouped by type of product - personal loans, salary loans, housing loans, auto loans and credit cards.

102 2013 ANNUAL REPORT They’ve Got Something to Talk About 103 Credit risk weighting as of December 31, 2013 and 2012 Parent Company Total credit risk exposure after risk mitigation 2012 The table below shows the different credit risk exposures of the Group and of the Parent Company after credit risk mitigation, Capital Risk Buckets by risk weight applied in accordance with BSP Circular No. 538: Deduction 0% 20% 50% 75% 100% 150% Total Credit risk exposure after Consolidated risk mitigation 2013 On-balance sheet assets P=2,177,997 P=26,018,586 P= 882,316 P=3,922,097 P= 5,957,573 P= 67,524,554 P=2,667,813 P=106,972,939 Off-balance sheet assets − − − − − 691,077 − 691,077 Risk Buckets Capital Counterparty in the banking Total Deduction 0% 20% 50% 75% 100% 150% book (derivatives and 3,230,922 Credit risk exposure after repo-style transactions) − 1,376,530 − − − − 4,607,452 risk mitigation Counterparty in the trading On-balance sheet assets P=2,462,822 P=22,413,466 P=3,663,390 P=4,514,002 P=6,933,876 P=85,758,201 P=3,823,801 P=127,106,736 book (derivatives and Off-balance sheet assets − − − − − 1,531,487 − 1,531,487 repo-style transactions) − − 14,391 6,190 − 88,732 − 109,313 Counterparty in the banking Credit-linked notes in the book (derivatives and 2,029,162 banking book − − − − − − − – − repo-style transactions) − − − − − 2,029,162 Securitization exposures − − − − − − − – Counterparty in the trading 2,177,997 27,395,116 896,707 3,928,287 5,957,573 71,535,285 2,667,813 112,380,781 book (derivatives and Credit Risk Weighted Assets P= − P=− P=179,341 P=1,964,144 P= 4,468,180 P=71,535,285 P=4,001,720 P= 82,148,670 repo-style transactions) − − 2,177 − − 20,777 − 22,954 Credit-linked notes in the banking book − − − − − − − – Liquidity Risk Securitization exposures − − − − − − − – Liquidity risk is the risk that sufficient funds are unavailable to adequately meet all maturing liabilities, including demand 2,462,822 22,413,466 22,413,466 4,514,002 6,933,876 89,339,627 3,823,801 130,690,339 deposits and off-balance sheet commitments. The main responsibility of daily asset liability management lies with the P= − P= − P=2,257,001 P=5,200,407 P=89,339,627 P=103,265,850 Credit Risk Weighted Assets P= − P=5,735,702 Treasury Group, specifically the Liquidity Desk, which is tasked to manage the Parent Company’s balance sheet and have a thorough understanding of the risk elements involved in the business. The Parent Company’s liquidity risk management is Consolidated then monitored through ALCO. Resulting analysis of the balance sheet along with the recommendation is presented during 2012 the weekly ALCO meeting where deliberations, formulation of actions and decisions are made to minimize risk and maximize Parent Company returns. Discussions include actions taken in the previous ALCO meeting, economic and market status and Capital Risk Buckets Deduction 0% 20% 50% 75% 100% 150% Total outlook, liquidity risk, pricing and interest rate structure, limit status and utilization. To ensure that the Parent Company has Credit risk exposure after sufficient liquidity at all times, the ALCO formulates a contingency funding plan which sets out the amount and the sources of risk mitigation funds (such as unutilized credit facilities) available to the Parent Company and the circumstances under which such funds will On-balance sheet assets P=2,388,614 P=26,145,142 P=882,578 P=3,922,097 P=5,936,410 P=69,818,770 P=2,937,661 P=109,669,658 be used. Off-balance sheet assets − − − − − 691,077 − 691,077 Counterparty in the banking By way of the Maximum Cumulative Outflow (MCO) limit, the Parent Company is able to manage its short-term liquidity book (derivatives and 3,230,922 risks by placing a cap on the outflow of cash on a per tenor and on a cumulative basis. The Parent Company takes a multi- − − − − 4,607,452 repo-style transactions) − − tiered approach to maintaining liquid assets. The Parent Company’s principal source of liquidity is comprised of COCI, Due Counterparty in the trading book (derivatives and from BSP, Due from other banks and IBLR with maturities of less than one year. In addition to regulatory reserves, the repo-style transactions) − − 14,391 6,190 − 88,732 − 109,313 Parent Company maintains a sufficient level of secondary reserves in the form of liquid assets such as short-term trading and Credit-linked notes in the investment securities that can be realized quickly. banking book − − − − − − − – Securitization exposures − − − − − − − – Analysis of financial assets and liabilities by remaining contractual maturities 2,388,614 27,521,672 896,969 3,928,287 5,963,410 73,829,501 2,937,661 115,077,500 The table below shows the maturity profile of the financial assets and liabilities of the Group and of the Parent Company, P= − P=179,394 P=4,472,557 P=73,829,501 P=84,852,087 Credit Risk Weighted Assets P= − P=1,964,144 P=4,406,491 based on its internal methodology that manages liquidity based on contractual undiscounted cash flows (amounts in millions):

Consolidated 2013 Parent Company Up to >3 to 6 2013 >1 to 3 >6 to 12 Beyond 1 On demand 1 month months months months year Total Risk Buckets Capital Financial Assets 0% 20% 75% Total Deduction 50% 100% 150% Cash and cash equivalents* P= 2 1 , 7 8 0 P= 5 , 4 5 1 P= − P= − P= − P= 2 1 0 P=27,441 Credit risk exposure after Investments and trading risk mitigation securities** – 881 759 244 665 13,942 16,491 On-balance sheet assets P=3,788,855 P=22,207,803 P=3,662,406 P=4,514,002 P=6,933,876 P=82,168,463 P=3,498,936 P=22,985,486 Loans and receivables – 12,526 9,937 8,077 4,146 68,917 103,603 Off-balance sheet assets − − − − − 1,531,487 − 1,531,487 P= 2 1 , 7 8 0 P=18,858 P=10,696 P=8,321 P= 4 , 8 1 1 P=83,069 P=147,535 Counterparty in the banking Financial Liabilities book (derivatives and 2,029,162 Deposit liabilities*** P= − P=12,213 P=15,398 P=12,633 P=6,676 P=66,271 P= 1 1 3 , 1 9 1 repo-style transactions) − − − − − − 2,029,162 Bills and acceptances payable – 2,379 588 – – 460 3,427 Counterparty in the trading Subordinated debt – 1,250 – – – 1,613 2,863 book (derivatives and 20,777 22,954 Other liabilities 919 56 18 22 12 5,006 6,033 repo-style transactions) − − 2,177 − − − − – Contingent liabilities – 713 553 681 1,093 (1,753) 1,287 Credit-linked notes in the − − − − − − − – P= 9 1 9 P=16,611 P=16,557 P=13,336 P= 7 , 7 8 1 P=71,597 P=126,801 banking book − − − − − − Securitization exposures 3,788,855 22,207,803 3,664,583 4,514,002 6,933,876 85,749,889 3,498,936 126,569,089 * Consist of cash and cash other items, due from BSP, due from other banks and IBLR P= − P= − P= 7 3 2 , 9 1 7 P=2,257,001 P=5,200,407 P=85,749,889 P=5,248,404 P=99,188,618 ** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables from investment securities at amortized cost. Credit Risk Weighted Assets *** Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest payable for these deposit liabilities.

104 2013 ANNUAL REPORT They’ve Got Something to Talk About 105 Consolidated 2012 The Parent Company manages liquidity by maintaining sufficient liquid assets in the form of cash and cash equivalents, investments securities and loan receivables with what it assesses to be sufficient of short-term loans. As of December Up to >1 to 3 >3 to 6 >6 to 12 Beyond 1 31, 2013 and 2012, P= 35.59 billion and P= 32.14 billion, respectively, or 37.50% and 42.30%, respectively, of the Parent On demand 1 month months months months year Total Financial Assets Company’s total gross loans and receivables had remaining maturities of less than one (1) year. The total portfolio of trading Cash and cash equivalents* P= 1 8 , 1 5 6 P= 9 , 1 5 5 P= − P= − P= − P= − P=27,311 and investment securities is comprised mostly of sovereign-issued securities that have high market liquidity. The Parent Investments and trading Company was fully compliant with BSP’s limits on FCDU Asset Cover and FCDU Liquid Assets Cover, having reported ratios securities** – 51 48 2,296 2,642 18,226 23,263 above 100.00% and 30.00%, respectively, as of December 31, 2013 and 2012. With the above presented liquidity profile, Loans and receivables – 10,833 9,067 5,128 4,809 41,355 71,192 the Group remains to be inhibited from liquidity risk that it can’t adequately manage. P= 1 8 , 1 5 6 P=20,039 P= 9 , 1 1 5 P= 7 , 4 2 4 P= 7 , 4 5 1 P=59,581 P= 1 2 1 , 7 6 6 Financial Liabilities Market Risk Deposit liabilities*** P= − P= 8 , 7 8 5 P=14,050 P=12,007 P= 4 , 0 6 9 P=54,733 P=93,644 Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market Bills and acceptances payable – 3,868 1,669 – – 35 5,572 Subordinated debt – – 113 1 – 2,750 2,864 variables such as interest rates, foreign exchange rates, and equity prices. The Parent Company treats exposures to market Other liabilities 733 32 55 65 52 3,523 4,460 risk as either trading portfolio or balance sheet exposure. The market risk for the trading portfolio is managed and monitored Contingent liabilities – 464 777 595 776 (1,098) 1,514 based on a VaR methodology which reflects the interdependency between risk variables. Balance sheet exposures are P= 7 3 3 P=13,149 P=16,664 P=12,668 P= 4 , 8 9 7 P= 5 9 , 9 4 3 P=108,054 managed and monitored using sensitivity analyses. * Consist of cash and cash other items, due from BSP, due from other banks and IBLR ** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables from investment Market risk in the trading books securities at amortized cost. The Board has set limits on the level of risk that may be accepted. Price risk limits are applied at the business unit level and *** Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest payable for these deposit liabilities. approved by the BOD based on, among other things, a business unit’s capacity to manage price risks, the size and distribution of the aggregate exposure to price risks and the expected return relative to price risks. Parent Company 2013 The Parent Company applies VaR methodology to assess the market sensitive positions held and to estimate the potential Up to >1 to 3 >3 to 6 >6 to 12 Beyond 1 economic loss based on a number of parameters and assumptions on market conditions. VaR is a method used in measuring On demand 1 month months months months year Total financial risk by estimating the potential negative change in the market value of a portfolio at a given confidence level and Financial Assets over a specified time horizon. Cash and cash equivalents* P=21,535 P=5,401 P= − P= − P= − P= − P= 2 6 , 9 3 6 Investments and trading securities** – 880 759 244 665 15,341 17,889 Objectives and limitations of the VaR Methodology Loans and receivables – 12,517 9,930 8,068 4,118 65,352 99,985 The Parent Company uses the parametric VaR model, using one-year historical Bloomberg data set to assess possible P=21,535 P= 1 8 , 7 9 8 P=10,689 P=8,312 P= 4 , 7 8 3 P=80,693 P=144,810 changes in the market value of the trading portfolio. The VaR model is designed to measure market risk in a normal market Financial Liabilities environment. The model assumes that any change occurring in the risk factors affecting the normal market environment Deposit liabilities*** P= − P= 1 1 , 1 6 8 P= 1 4 , 7 6 5 P= 1 2 , 1 5 8 P=6,379 P=66,113 P=110,583 will create outcomes that follow a normal distribution. The use of VaR has limitations because correlations and volatilities in Bills and acceptances payable – 2,251 588 – – 450 3,289 market prices are based on historical data and VaR assumes that future price movements will follow a statistical distribution. – Subordinated debt – 1,250 – – 1,500 2,750 Due to the fact that VaR relies heavily on historical data to provide information and may not clearly predict the future changes 919 55 17 22 12 4,379 5,404 Other liabilities and modifications of the risk factors, the probability of large market moves may be underestimated if changes in risk factors Contingent liabilities – 713 553 681 1,093 (1,753) 1,287 P= 9 1 9 P=15,437 P=15,923 P=12,861 P= 7 , 4 8 4 P=70,689 P=123,313 fail to align with the normal distribution assumption. * Consist of cash and cash other items, due from BSP, due from other banks and IBLR ** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables from investment VaR may also be under or over estimated due to assumptions placed on risk factors and the relationship between such securities at amortized cost. factors for specific instruments. Even though positions may change throughout the day, the VaR only represents the risk of *** Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest payable for these deposit the portfolio at the close of each business day, and it does not account for any losses that may occur beyond the 99.00% liabilities. confidence level.

In practice, actual trading results will differ from the VaR calculation and, in particular, the calculation does not provide a Parent Company meaningful indication of profits and losses in stressed market conditions. To determine the reliability of the VaR model, 2012 actual outcomes are monitored through actual backtesting to test the accuracy of the VaR model. Up to >1 to 3 >3 to 6 >6 to 12 Beyond 1 1 month months On demand months months year Total Stress testing provides a means of complementing VaR by simulating the potential loss impact on market risk positions from Financial Assets extreme market conditions, such as 500 bps increase in Philippine peso interest rates and 300 bps increase in US dollar Cash and cash equivalents* P=18,043 P=9,034 P= − P= − P= − P= − P=27,077 Investments and trading interest rates (based on the uniform stress testing framework of BSP). securities** – 51 48 2,296 2,642 18,226 23,263 Loans and receivables – 10,808 9,059 5,109 4,710 39,784 69,470 VaR assumptions P=18,043 P=19,893 P= 9 , 1 0 7 P= 7 , 4 0 5 P=7,352 P=58,010 P=119,810 The VaR that the Parent Company measures is an estimate, using a confidence level of 99.00% of the potential loss that is Financial Liabilities not expected to be exceeded if the current market risk positions were to be held unchanged for 5 days. The use of a 99.00% Deposit liabilities*** P= − P=8,658 P=13,630 P=11,450 P=3,267 P= 5 3 , 9 0 3 P=90,908 confidence level means that within a five-day horizon, losses exceeding the VaR figure should occur, on average, not more Bills and acceptances payable – 3,868 1,669 – – 35 5,572 than once every hundred days. Subordinated debt – – – – – 2,750 2,750 Other liabilities 733 16 29 31 3 3,458 4,270 VaR is an integral part of the Parent Company’s market risk management and encompasses investment positions held for Contingent liabilities – 464 777 595 776 (1,098) 1,514 P= 7 3 3 P=13,006 P= 1 6 , 1 0 5 P=12,076 P= 4 , 0 4 6 P=59,048 P=105,014 trading. VaR exposures form part of the market risk monitoring which is reviewed daily against the limit approved by the * Consist of cash and cash other items, due from BSP, due from other banks and IBLR Board. If the Market Risk Limit is exceeded, such occurrence is promptly reported to the Treasurer, Chief Risk Officer and the ** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables from investment President, and further to the Board through the RMC. securities at amortized cost. *** Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest payable for these deposit liabilities.

106 2013 ANNUAL REPORT They’ve Got Something to Talk About 107 The VaR below pertains to interest rate risk of the Parent Company’s trading books. The table below summarizes the exposure to foreign exchange risk of the Parent Company as of December 31, 2013 and 2012: 2013 2012 2013 Year-end VaR P= 1 3 , 1 2 2 P=47,534 Other Average VaR 67,046 66,490 USD Currencies Total Highest VaR 324,284 166,946 Assets Lowest VaR 3,392 13,725 Gross FX assets $494,222 $1,203 $495,425 Contingent FX assets 31,524 − 31,524 The year-end VaR for 2013 was based on a portfolio position size equal to P=1.20 billion with an average yield of 3.56% and 525,746 1,203 526,949 average maturity of 5 years and 5 months. The year-end VaR for 2012 had a position size equal to P=2.46 billion with an Liabilities average yield of 4.18 % and average maturity of 10 years and 3 months. Gross FX liabilities 462,080 81 462,161 Contingent FX liabilities 59,000 24 59,024 In 2012, the Parent Company bought preferred shares for its trading portfolio. The VaR methodology is likewise applied in 521,080 105 521,185 measuring the potential loss arising from the price fluctuations of these shares at a 99.00% confidence level with a 10-day Net exposure $4,666 $1,098 $5,764 horizon. 2012 Other The VaR below pertains to the market risk of the equity positions of the Parent Company. USD Currencies Total 2013 2012 Assets Year-end VaR P=39,759 P=58,842 Gross FX assets $453,371 $909 $454,280 Average VaR 60,457 58,531 Contingent FX assets 81,300 − 81,300 Highest VaR 87,143 60,107 534,671 909 535,580 Lowest VaR 39,759 55,692 Liabilities Gross FX liabilities 413,440 − 413,440 Contingent FX liabilities 1 2 7,7 0 0 − 1 2 7,7 0 0 Foreign Currency Risk 541,140 − 541,140 The Parent Company holds foreign currency denominated assets and liabilities, thus, fluctuations on the foreign exchange Net exposure ($6,469) $909 ($5,560) rates can affect the financial and cash flows of the Parent Company. Managing the foreign exchange exposure is important for banks with exposures in foreign currencies. It includes managing foreign currency positions in order to control the impact of changes in exchange rates on the financial position of the Parent Company. The table below indicates the currencies to which the Parent Company had significant exposures as of December 31, 2013 and 2012 (amounts in millions). The analysis calculates the effect of a reasonably possible movement of the currency rate As noted above, the Parent Company likewise applies the VaR methodology in estimating the potential loss of the Parent against Peso, with all other variables held constant on the statement of income. A negative amount reflects a potential net Company due to foreign currency fluctuations. The Parent Company uses a 99.00% confidence level with one-day horizon reduction in statement of income while a positive amount reflects net potential increase. There is no other impact on the in estimating the foreign exchange (FX) VaR. The use of a 99.00% confidence level means that within a one-day horizon, Parent Company’s equity other than those already affecting the statements of income. losses exceeding the VaR figure should occur, on average, not more than once every hundred days. Foreign currency appreciates 2013 The Parent Company’s policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory (depreciates) USD GBP EUR JPY guidelines. In 2013 and 2012, the Parent Company’s profile of foreign currency exposure on its assets and liabilities is +10.00% P= 2 0 . 7 2 P= 1 . 9 6 P=1.85 P= . 2 5 within limits for financial institutions engaged in the type of businesses in which the Parent Company is engaged. -10.00% (20.72) (1.96) (1.85) (.25)

The VaR below pertains to foreign exchange risk of the Parent Company. Foreign currency appreciates 2012 2013 2012 (depreciates) USD GBP EUR JPY Year-end VaR P= 1 , 9 6 3 P=1,826 +10.00% (P=26.56) P= . 5 6 P=1.2 P=2.05 Average VaR 2,423 2,073 -10.00% 26.56 (.56) (1.2) (2.05) Highest VaR 8,364 8,514 Lowest VaR 13 9 Market Risk in the Non-Trading Books

Interest rate risk Some of the Parent Company’s transactions exposed to foreign currency fluctuations include spots and forwards contracts, A critical element of risk management program consists of measuring and monitoring the risks associated with fluctuations investments in bonds and due from other banks. The FX position emanates from both the RBU and FCDU books. In the in market interest rates on the Group’s net interest income. The short-term nature of its assets and liabilities reduces the FCDU books, BSP requires banks to match the foreign currency assets with the foreign currency liabilities. Thus, banks exposure of its net interest income to such risks. are required to maintain at all times a 100.00% cover for their currency liabilities held through FCDU. In addition, the BSP requires a 30.00% liquidity reserve on all foreign currency liabilities held through FCDU. The Parent Company employs ‘Gap Analysis’ on a monthly basis to measure the interest rate sensitivity of its assets and liabilities. The asset/liability gap analysis measures, for any given period, any mismatches between the amounts of interest- Total foreign exchange currency position is monitored through the daily BSP FX position reports, which are subject to the earning assets and interest-bearing liabilities that would re-price, or mature (for contracts that do not re-price), during that overbought and oversold limits set by the BSP at 20.00% of unimpaired capital or USD50.00 million, whichever is lower. period. Non-maturing deposits are treated as non repricing liabilities by the Parent Company. The re-pricing gap is calculated Internal limits regarding the intraday trading and end-of-day trading positions in FX, which take into account the trading by first distributing the assets and liabilities contained in the Group’s statement of financial position into tenor buckets desk and the branch FX transactions, are also monitored. according to the time remaining to the next re-pricing date (or the time remaining to maturity if there is no re-pricing), and then obtaining the difference between the total of the re-pricing (interest rate sensitive) assets and re-pricing (interest rate sensitive) liabilities. If there is a positive gap, there is asset sensitivity which generally means that an increase in interest rates would have a positive effect on the Group’s net interest income. If there is a negative gap, this generally means that an increase in interest rates would have a negative effect on net interest income.

108 2013 ANNUAL REPORT They’ve Got Something to Talk About 109 The following table provides for the average effective interest rates by period of re-pricing (or by period of maturity if there is 2013 no re-pricing) of the Group as of December 31, 2013 and 2012: Up to >1 to 3 >3 to 6 >6 to 12 2013 1 month months months months >12 months Up to >1 to 3 >3 to 6 >6 to 12 FCDU 1 month months months months >12 months Financial assets 0.19% − − − − RBU Cash and cash equivalents 1.49% − 3.55% 5.35% 6.77% Financial assets Loans and receivables 3.15% 3.15% 3.15% − 3.24% Cash and cash equivalents 1.99% − − − − Investment securities Loans and receivables 4.82% 5.23% 5.21% 7.1 5 % 8.04% Financial liabilities 1.34% 1.37% 1.43% 1.63% 2.54% Investment securities 2.49% 2.49% − − 3.08% Deposit liabilities Financial liabilities Deposit liabilities 1.08% 1.43% 1.65% 4.01% 4.26% 2012 Bills payable 0.77% 0.68% − − − Up to >1 to 3 >3 to 6 >6 to 12 Subordinated debt 8.63% − − − 7. 6 5 % 1 month months months months >12 months RBU FCDU Financial assets Financial assets Cash and cash equivalents 3.55% – – – − Cash and cash equivalents 0.19% − − − − Loans and receivables 5.48% 5.34% 7. 5 3 % 6.92% 12.72% Loans and receivables 1.49% − 3.55% 5.35% 6.77% Investment securities – – – – 4.92% Investment securities 3.15% 3.15% 3.15% − 3.24% Financial liabilities Financial liabilities Deposit liabilities 3.32 % 3.60% 3.63% 4.60% 5.40% Deposit liabilities 1.34% 1.37% 1.43% 1.63% 2.54% Bills payable 0.81% 0.78% − – − Subordinated debt – – – – 8.01% 2012 Up to >1 to 3 >3 to 6 >6 to 12 FCDU 1 month months months months >12 months Financial assets RBU Cash and cash equivalents 0.83% − − − − Financial assets Loans and receivables 3.02% 5.23% 4.07% 2.66% 7. 5 6 % Cash and cash equivalents 3.55% − − − − Investment securities 4.23% – – – 5.11% Loans and receivables 5.50% 5.34% 7. 4 7 % 7. 0 % 11.43% Financial liabilities Investment securities − − − − 4.92% Deposit liabilities 1.57% 1.52% 1.83% 1.60% 2.02% Financial liabilities Deposit liabilities 3.32 % 3.83% 3.89% 4.71% 5.41% Bills payable 0.81% 0.78% − − − Subordinated debt − 10.08% − − 8.18% The following table sets forth the asset-liability gap position of the Group as of December 31, 2013 and 2012 (amounts in millions): FCDU 2013 Financial assets Up to >1 to 3 >3 to 6 >6 to 12 Cash and cash equivalents 0.83% − − − − 1 month months months months >12 months >12 months Loans and receivables 3.02% 5.23% 4.07% 2.66% 7. 5 6 % Financial assets 4.23% − − − 5.11% Investment securities Cash and cash equivalents P=2,512 P= – P= – P= – P= – P=2,512 Financial liabilities Loans and receivables 30,721 4,136 4,549 4,470 30,548 74,424 1.57% 1.52% 1.83% 1.60% 2.02% Deposit liabilities Investment securities 870 708 13 – 8,173 9,764 Total financial assets 34,103 4,844 4,562 4,470 38,721 86,700 Financial liabilities 29,768 3,619 545 360 48,754 The following table provides for the average effective interest rates by period of re-pricing (or by period of maturity if there is Deposit liabilities 14,462 Bills and acceptances payable 2,251 1,032 – – – 3,283 no re-pricing) of the Parent Company as of December 31, 2013 and 2012: Other liabilities – – – – – – 2013 Subordinated debt 1,250 – – – 1,613 2,863 Up to >1 to 3 >3 to 6 >6 to 12 Contingent liabilities 22 – – – – 22 1 month months months months >12 months Total financial liabilities 33,291 4,651 545 360 16,075 54,922 RBU Asset-liability gap P= 8 1 2 P= 1 9 3 P= 4 , 0 1 7 P= 4 , 1 1 0 P=22,646 P=31,778 Financial assets Cash and cash equivalents 1.99% − − − − Loans and receivables 4.92% 6.41% 7.34% 9.77% 9.34% Investment securities 2.49% 2.49% − − 3.08% Financial liabilities Deposit liabilities 1.06% 1.40% 1.54% 4.14% 4.26% Bills payable 0.77% 0.68% − − − Subordinated debt 8.63% − − − 7. 5 0 %

(Forward)

110 2013 ANNUAL REPORT They’ve Got Something to Talk About 111 2012 The Group also monitors its exposure to fluctuations in interest rates by using scenario analysis to estimate the impact of Up to >1 to 3 >3 to 6 >6 to 12 interest rate movements on its interest income. This is done by modeling the impact to the Group’s interest income and 1 month months months months >12 months >12 months interest expenses of different parallel changes in the interest rate curve, assuming the parallel change only occurs once and Financial assets the interest rate curve after the parallel change does not change again for the next twelve months. Cash and cash equivalents P=8,815 P=– P=– P=– P=– P=8,815 Loans and receivables 21,957 5,884 2,866 5,569 16,938 53,214 The following table sets forth, for the period indicated, the impact of changes in interest rates on the Group’s non-trading net Investment securities 51 – – – 8,585 8,636 interest income (amounts in millions). There is no other impact on the Group’s equity other than those already affecting the Total financial assets 30,823 5,884 2,866 5,569 25,523 70,665 statements of income. Financial liabilities 2013 2012 Deposit liabilities 31,191 7, 5 3 4 1,162 451 3,261 43,599 Change in basis points Bills and acceptances payable 3,047 1,669 – – – 4,716 +10.00% P=44.8 (P=46.7) Other liabilities – – – – – – -10.00% (44.8) 46.7 Subordinated debt – 114 – – 2,750 2,864 Contingent liabilities 84 777 145 273 15 1,294 Total financial liabilities 34,322 10,094 1,307 724 6,026 52,473 The following table sets forth, for the period indicated, the impact of changes in interest rates on the Parent Company’s non- Asset-liability gap (P=3,499) (P=4,210) P=1,559 P=4,845 P=19,497 P=18,192 trading net interest income (amounts in millions). There is no other impact on the Parent Company’s equity other than those already affecting the statements of income.

Change in basis points 2013 2012 The following table sets forth the asset-liability gap position of the Parent Company as of December 31, 2013 and 2012 +10.00% P=64.6 (P=4.8) (amounts in millions): 24.8 2013 -10.00% (64.6) Up to >1 to 3 >3 to 6 >6 to 12 1 month months months months >12 months >12 months Market Risk Weighting as of December 31, 2013 and 2012 Financial assets The table below shows the different market risk-weighted assets (in millions) of the Group and the Parent Company using the Cash and cash equivalents P=2,512 P= – P= – P= – P= – P=2,512 standardized approach: Loans and receivables 30,839 4,116 4,530 4,434 2 7, 43 3 71,352 Investment securities 870 708 13 − 8,173 9,764 Type of Market Risk Exposure 2013 2012 Total financial assets 34,221 4,824 4,543 4,434 35,606 83,628 Interest Rate Exposures P=1,874 P=5,243 Financial liabilities Foreign Exposures 256 266 Deposit liabilities 28,209 3,153 512 339 14,462 46,675 Equity Exposures 7 27 3,283 Bills and acceptances payable 2,251 1,032 – − − P=2,137 P=5,536 Other liabilities – – – − − − Subordinated debt 1,250 – – − 1,500 2,750 Contingent liabilities 22 – – − − 22 Total financial liabilities 31,732 4,185 512 339 15,962 52,730 Operational Risk Asset-liability gap P=2,489 P= 6 3 9 P= 4 , 0 3 1 P= 4 , 0 9 5 P=19,644 P=30,898 Operational risk is the loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes legal, compliance and reputational risks but excludes strategic risk.

2012 Adopting the Basic Indicator Approach in computing, below is the total operational risk-weighted assets of the Group and Up to >1 to 3 >3 to 6 >6 to 12 Parent Company (amounts in millions). 1 month months months months >12 months >12 months 2013 2012 2011 Financial assets Cash and cash equivalents P=8,815 P= – P= – P= – P= – P=8,815 Group P=15,338 P= 1 2 , 9 7 3 P= 1 2 , 9 7 3 Loans and receivables 21,932 5,876 2,847 5,470 15,613 51,738 Parent Company 14,701 12,229 12,229 Investment securities 51 – − – 8,585 8,636 Total financial assets 30,798 5,876 2,847 5,470 24,198 69,189 Financial liabilities Other Risk Exposures 30,953 5,351 981 417 3,261 40,963 Deposit liabilities Group risk exposures other than credit, market, liquidity and operational, while existent, are deemed insignificant relative 3,047 1,669 − – − 4,716 Bills and acceptances payable to the mentioned risks and if taken in isolation. Hence, management of these risks are instead collectively performed and − − − – − − Other liabilities made an integral part of the Group’s internal capital adequacy assessment process (ICAAP) and enterprise risk management Subordinated debt − − − – 2,750 2,750 initiatives. Contingent liabilities 84 777 145 273 15 1,294 Total financial liabilities 34,084 7,797 1,126 690 6,026 49,723 The last internal capital adequacy assessment results of the Group show that these other risks remain insignificant to pose a Asset-liability gap (P=3,286) (P=1,921) P= 1 , 7 2 1 P= 4 , 7 8 0 P= 1 8 , 1 7 2 P=19,466 threat on the Group’s capacity to comply with the minimum capital adequacy ratio of 10% as prescribed by BSP.

With the above positive re-pricing profile, the Group could expect positive returns from the following months after the end of 2013 should there be an upward movement in interest rates.

112 2013 ANNUAL REPORT They’ve Got Something to Talk About 113 Consolidated 5. Fair Value Measurement 2012 Fair Value The following table provides the fair value hierarchy of the Group’s and of the Parent Company’s assets and liabilities Significant measured at fair value and those for which fair values are required to be disclosed: Quoted Prices in observable Significant Carrying active market inputs Consolidated unobservable Value Total (Level 1) (Level 2) inputs 2013 Assets for which fair values are disclosed (Level 3) Fair Value Financial assets Significant Significant Investment securities at amortized cost: Quoted Prices in observable unobservable Government securities 8,253,247 8,862,425 8,862,425 – – Carrying active market inputs inputs Private bonds 1,367,258 1,887,344 1,887,344 – – Value Total (Level 1) (Level 2) (Level 3) 9,620,505 10,749,769 10,749,769 – – Assets measured at fair value Loans and receivables Financial assets Receivable from customers: Financial assets at FVTPL: Corporate lending 31,720,228 34,128,059 – – 34,128,059 HFT investments: Consumer lending 38,165,990 39,482,447 – – 39,482,447 Government securities P=691,437 P=691,437 P=691,437 P= – P= – Unquoted debt securities 207,937 207,937 – – 207,937 Private bonds 543,626 543,626 543,626 – – 70,094,155 73,818,443 – – 73,818,443 Equity securities 713,640 713,640 713,640 – – Non-financial assets 1,948,703 1,948,703 1,948,703 – – Investment properties 937,468 1,666,786 – 1,666,786 – Derivative assets 90 90 – 90 – Total assets P= 8 4 , 9 6 3 , 7 5 1 P=90,546,621 P=15,020,076 P=1,708,102 P=73,818,443 Financial assets at FVTOCI 10,733 10,733 10,733 – – Liabilities measured at fair value Assets for which fair values are disclosed Financial liabilities Financial assets Derivative liabilities P=97,684 P=97,684 P= – P=97,684 P= – Investment securities at amortized cost: Liabilities for which fair values are disclosed Government securities 7, 6 6 7, 2 5 4 7,778,029 7,778,029 – – Financial liabilities Private bonds 1,413,066 1,752,318 1,752,318 – – Deposit liabilities 9,080,320 9,530,347 9,530,347 – – Time 39,317,476 39,510,418 – – 39,510,418 Loans and receivables LTNCD 1,523,778 1,755,861 – – 1,755,861 Receivable from customers: 40,841,254 41,266,279 – – 41,266,279 – – 47,011,932 Corporate lending 47,558,271 47,011,932 Subordinated debt 2,863,751 3,550,031 – – 3,550,031 – – 50,102,457 Consumer lending 41,871,825 50,102,457 Total liabilities P=43,802,689 P=44,913,994 P= – P=97,684 P=44,816,310 Unquoted debt securities 208,753 208,753 – – 208,753 89,638,849 97,323,142 – – 97,323,142 Non-financial assets Investment properties 1,006,716 1,420,398 – 1,420,398 – Parent Company Total assets P=101,685,411 P=110,233,413 P=11,489,783 P=1,420,488 P=97,323,142 2013 Liabilities measured at fair value Fair Value Financial liabilities Significant Significant Derivative liabilities P= 2 1 , 9 7 8 P= 2 1 , 9 7 8 P= – P= 2 1 , 9 7 8 P= – Quoted Prices in observable unobservable Liabilities for which fair values are disclosed Carrying active market inputs inputs Financial liabilities Value Total (Level 1) (Level 2) (Level 3) Deposit liabilities Assets measured at fair value – – 41,314,743 Time 41,275,731 41,314,743 Financial assets – – 6,997,876 LTNCD 5,466,003 6,997,876 Financial assets at FVTPL: 46,741,734 48,312,619 – – 48,312,619 HFT investments: Subordinated debt 2,862,500 4,099,986 – – 4,099,986 Government securities P=691,437 P=691,437 P=691,437 P= – P= – Total liabilities P=49,626,212 P=52,434,583 P= – P= 2 1 , 9 7 8 P=52,412,605 Private bonds 543,626 543,626 543,626 – – Equity securities 713,640 713,640 713,640 – – Consolidated 1,948,703 1,948,703 1,948,703 – – 2012 Derivative assets 90 90 – 90 – Financial assets at FVTOCI 10,733 10,733 10,733 Fair Value – – Assets for which fair values are disclosed Significant Significant Financial assets Quoted Prices in unobservable observable Investment securities at amortized cost: Carrying active market inputs inputs Government securities 7, 6 6 7, 2 5 4 7,778,029 7,778,029 – – Value Total (Level 1) (Level 2) (Level 3) Private bonds 1,412,653 1,751,904 1,752,904 – – Assets measured at fair value 9,079,907 9,529,933 9,529,933 – – Financial assets Loans and receivables Financial assets at FVTPL: Receivable from customers: HFT investments: Corporate lending 47,558,271 47,011,932 – – 47,011,932 Government securities P=1,805,939 P=1,805,939 P=1,805,939 P= – P= – Consumer lending 41,887,643 46,716,063 – – 46,716,063 Private bonds 1,206,722 1,206,722 1,206,722 – – Unquoted debt securities 208,132 208,132 – – 208,132 Equity securities 1,247,664 1,247,664 1,247,664 – – 89,654,046 93,936,127 – – 97,323,142 4,260,325 4,260,325 4,260,325 – – Non-financial assets Derivative assets P=41,316 P=41,316 P= – P=41,316 P= – Investment properties 811,423 1,048,808 – 1,048,808 – Financial assets at FVTOCI 9,982 9,982 9,982 – – Total assets P=101,504,902 P=106,474,394 P=11,489,369 P=1,048,898 P=93,936,127

(Forward)

114 2013 ANNUAL REPORT They’ve Got Something to Talk About 115 Parent Company The methods and assumptions used by the Group in estimating the fair value of the financial instruments are: 2013 Fair Value COCI, due from BSP and other banks and IBLR - The carrying amounts approximate fair values due to the short-term nature Significant Significant of these accounts. IBLR consist mostly of overnight deposits and floating rate placements. Quoted Prices in observable unobservable active market Carrying inputs inputs Loans and receivables - Fair values of loans and receivables are estimated using the discounted cash flow methodology, using Total (Level 1) (Level 3) Value (Level 2) the Parent Company’s current incremental lending rates for similar types of loans and receivables. Liabilities measured at fair value Financial liabilities Debt securities - Fair values are generally based on quoted market prices. If the market prices are not readily available, Derivative liabilities P= 2 1 , 9 7 8 P= 2 1 , 9 7 8 P= – P= 2 1 , 9 7 8 P= – Liabilities for which fair values are disclosed fair values are estimated using either values obtained from independent parties offering pricing services or adjusted quoted Financial liabilities market prices of comparable investments or using the discounted cash flow methodology. Deposit liabilities Time 41,275,731 41,379,781 – – 41,379,781 Equity securities - Fair values of quoted equity securities are based on quoted market prices. Unquoted equity investments LTNCD 5,466,003 6,997,876 – – 6,997,876 are simply carried at cost since there is insufficient information available to determine fair values and there are no indicators 46,741,734 48,377,657 – – 48,377,657 that the investments are impaired. Subordinated debt 2,750,000 3,952,174 – – 3,952,174 Total liabilities P=49,513,712 P=52,351,809 P= – P= 2 1 , 9 7 8 P=52,329,831 Derivative instruments - Fair values of derivative instruments, mainly forward foreign exchange contracts, are valued using a valuation technique with market observable inputs. The most frequently applied valuation technique is forward pricing, which Parent Company uses present value calculations. The model incorporates various inputs including the foreign exchange rates and interest rate curves prevailing at the statement of financial position date. 2012 Fair Value Liabilities - The fair values of liabilities approximate their carrying amounts due to either the demand nature or the relatively Significant Significant short-term maturities of these liabilities except for time deposit liabilities, LTNCD and subordinated debt whose fair value are Quoted Prices in observable unobservable Carrying active market inputs inputs estimated using the discounted cash flow methodology using the Parent Company’s incremental borrowing rates for similar Value Total (Level 1) (Level 2) (Level 3) borrowings with maturities consistent with those remaining for the liability being valued. Assets measured at fair value Financial assets Derivative Financial Instruments Financial assets at FVTPL: The Parent Company’s freestanding derivative financial instruments, which mainly consist of foreign currency forward HFT investments: contracts and swaps, are transactions not designated as hedges. The table below sets out information about the Parent Government securities P=1,805,939 P=1,805,939 P=1,805,939 P= – P= – Company’s derivative financial instruments and the related fair value as of December 31, 2013 and 2012: Private bonds 1,206,722 1,206,722 1,206,722 – – – – Equity securities 1,247,664 1,247,664 1,247,664 2013 2012 4,260,325 4,260,325 4,260,325 – – Derivative assets 41,316 41,316 – 41,316 – Notional amount $32,000 $209,000 Financial assets at FVTOCI 9,982 9,982 9,982 – – Derivative assets P= 9 0 P=41,316 Assets for which fair values are disclosed Derivative liabilities 22,017 97,684 Financial assets Investment securities at amortized cost: Government securities 8,253,247 8,862,425 8,862,425 – – The net movements in fair value changes of all derivative instruments are as follows: Private bonds 1,366,848 1,887,344 1,887,344 – – 9,620,095 10,749,769 10,749,769 – – 2013 2012 Loans and receivables Derivative assets (liabilities) - net at beginning Receivable from customers: of year (P=56,368) P= 4 4 9 34,128,059 – – 34,128,059 Corporate lending 31,720,228 Changes in fair value of derivatives (3,585,414) (8,324,636) Consumer lending 35,734,037 37,628,781 – – 37,628,781 3,619,855 8,267,819 Unquoted debt securities 2 0 7, 8 6 9 2 0 7, 8 6 9 2 0 7, 8 6 9 Fair value of settled instruments 67,662,134 71,964,709 – – 71,964,709 Derivative assets (liabilities) - net at end of year (P=21,927) (P=56,368) Non-financial assets Investment properties 937,648 1,297,364 – 1,297,364 – Total assets P=82,531,500 P=88,323,465 P=15,020,076 P=1,338,680 P= 7 1 , 9 6 4 , 7 0 9 Fair value changes of derivatives are recognized as Foreign exchange gain in the statements of income. Liabilities measured at fair value Financial liabilities Derivative liabilities P=97,684 P=97,684 P= – P=97,684 P= – Liabilities for which fair values are disclosed Financial liabilities 6. Segment Reporting Deposit liabilities Time 39,438,612 39,662,110 – – 39,662,110 The Group’s main operating businesses are organized and managed primarily, according to the current organizational LTNCD 1,523,778 1,755,861 – – 1,755,861 structure. Each segment represents a strategic business unit that caters to the bank’s identified markets. The Group’s 40,962,390 41,417,971 – – 41,417,971 business segments are: Subordinated debt 2,750,000 3,439,083 – – 3,439,083 Total liabilities P=43,810,074 P=44,954,738 P= – P=97,684 P=44,857,054 (a) Retail banking - this segment mainly covers traditional branch banking products and services such as deposits, back-to-back/emerging market loans and other over-the-counter (OTC) transactions. It likewise caters to the needs of high net-worth clients for alternative investment channels. It includes entire transaction processing, service In 2013 and 2012, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and delivery and infrastructure consisting of the Group’s network of branches, automated teller machines as well as its out of Level 3 fair value measurements. internet banking platform;

116 2013 ANNUAL REPORT They’ve Got Something to Talk About 117 (b) Corporate banking - this segment handles lending and trade financing for both large corporations and middle market 2012 clients; Retail Corporate Consumer Treasury Elimination Banking Banking Banking and Trust Items Total (c) Consumer lending - this segment primarily caters to loans for individuals; Statement of Income Net Interest Income (d) Treasury and Trust - this segment consists of Treasury and Trust operations of the Group. Treasury focuses on Third Party P=1,702 P= 3 1 5 P=3,676 P= 9 0 P= 3 3 5 P=6,088 providing money market, trading and treasury services, as well as the management of the Group’s funding operations Intersegment 30 321 − − (351) − through debt securities, placements and acceptances with other banks. Trust includes fund management, investment 1,732 636 3,676 90 (46) 6,088 management services, custodianship, administration and collateral agency services, and stock and transfer agency Noninterest Income 726 72 1,554 1,353 (9) 3,696 services. In addition, the Parent Company through Trust, provides retail customers with alternative investment Revenue - Net of Interest Expense 2,458 708 5,230 1,443 (55) 9,784 opportunities through its unit investment fund products; Noninterest Expense (2,668) (394) (4,024) (265) (441) ( 7,7 9 2 ) Income Before Income Tax 314 1,206 1,178 (496) 1,992 The ‘Elimination Items’ includes the Group’s executive office and elimination items related to the Group’s segment (210) Provision for Income Tax (11) 379 (29) (488) (176) reporting framework. (27) Net Income for the Year (P=237) P= 3 0 3 P=1,585 P=1,149 (P=984) P=1,816 Management monitors the operating results of its business units separately for the purpose of making decisions about Statement of Financial Position resource allocation and performance assessment. Segment assets are those operating assets employed by a segment in Total Assets P=22,152 P= 3 5 , 4 2 4 P=39,246 P=13,067 P=11,514 P=121,403 its operating activities and are either directly attributable to the segment or can be allocated to the segment on a reasonable Total Liabilities 94,377 15,318 1,088 7, 4 6 4 (14,165) 104,082 basis. Segment liabilities are those operating liabilities that result from the operating activities of a segment and are either Statement of Income directly attributable to the segment or can be allocated to the segment on a reasonable basis. Interest income is reported Depreciation and Amortization 328 19 141 25 48 561 net, as management primarily relies on the net interest income as performance measure, not the gross income and expense. Provision for Impairment and Credit Losses − 42 1,514 − (25) 1,531 The Group’s revenue-producing assets are located in the Philippines (i.e., one geographical location); therefore, geographical segment information is no longer presented. The Group has no significant customers which contribute 10.00% or more of the consolidated revenue, net of interest expense. 2011 Retail Corporate Consumer Treasury Elimination The segment results include internal transfer pricing adjustments across business units as deemed appropriate by Banking Banking Banking and Trust Items Total management. Transactions between segments are conducted at estimated market rates on an arm’s length basis. Interest Statement of Income is charged/credited to the business units based on a pool rate which approximates the marginal cost of funds. Net Interest Income Third Party P=1,521 P= 3 1 5 P=2,636 P= 6 6 P= 3 7 5 P= 4 , 9 1 3 Segment information of the Group as of and for the years ended December 31, 2013, 2012 and 2011 follow (amounts in Intersegment 28 278 − − (306) − millions): 1,549 593 2,636 66 69 4,913 Noninterest Income 513 79 1,325 551 (77) 2,391 2013 Revenue - Net of Interest Expense 2,062 672 3,961 617 (8) 7, 3 0 4 Noninterest Expense (1,946) (289) (2,814) (230) 85 (5,194) Retail Corporate Consumer Treasury Elimination Income Before Income Tax 116 383 1,147 387 77 2,110 Banking Banking Banking Total and Trust Items Provision for Income Tax (38) (27) (152) (74) (88) (379) Statement of Income Net Income for the Year P= 7 8 P= 3 5 6 P= 9 9 5 P= 3 1 3 (P=11) P= 1 , 7 3 1 Net Interest Income Statement of Financial Position Third Party P= 2 , 1 2 2 P= 5 9 7 P=5,334 P= 3 3 5 P=8,393 P= 5 Total Assets P= 1 7 , 4 7 8 P= 2 5 , 1 9 0 P=26,822 P=11,489 P=15,028 P=96,006 Intersegment 50 426 − (476) − − Total Liabilities 78,687 14,654 1,011 3,846 (13,416) 84,782 2,172 1,023 5,334 5 (141) 8,393 Statement of Income Noninterest Income 654 56 2,391 1,474 197 4,772 Depreciation and Amortization 189 18 158 17 19 401 Revenue - Net of Interest Expense 2,826 1,079 1,479 13,165 7,7 2 5 56 Provision for Impairment and Noninterest Expense (3,440) (761) (10,890) (5,456) (267) (966) Credit Losses − 9 920 − (197) 732 Income Before Income Tax (614) 318 2,269 1,212 (910) 2,275 Provision for Income Tax − − − − (219) (219) Net Income for the Year (P=614) P= 3 1 8 P=2,269 P=1,212 (P=1,129) P=2,056 Noninterest income consists of service charges, fees and commissions, gain on sale of assets, gain on asset foreclosure and Statement of Financial Position dacion transactions, trading and securities gain, gain on sale (loss on derecognition) of investment securities at amortized cost, Total Assets P=25,539 P= 4 7 , 1 9 2 P=44,414 P= 1 0 , 1 2 4 P=15,030 P=142,299 foreign exchange gain, trust income and miscellaneous income. Noninterest expense consists of compensation and fringe Total Liabilities 109,315 21,556 1,806 10,579 (20,350) 122,906 benefits, taxes and licenses, depreciation and amortization, rent, amortization of intangible assets, provision for impairment Statement of Income and credit losses, and miscellaneous expenses. Depreciation and Amortization 417 27 191 17 66 718 Provision for Impairment and Credit Losses 3 376 2,191 4 526 3,100

118 2013 ANNUAL REPORT They’ve Got Something to Talk About 119 Acquisition of Green Bank (a Rural Bank), Inc. (GBI) 7. Business Combination On May 5, 2011, the BOD of the Parent Company approved the acquisition of the outstanding shares of GBI. GBI is a rural bank in the Caraga region with branches scattered across the Visayas and Mindanao. On May 24, 2011, the Parent Acquisition of East West Rural Bank, Inc. (formerly FinMan Rural Bank, Inc.) Company, GBI, and the majority shareholders of GBI entered into a Memorandum of Understanding to acquire the shares On January 26, 2012, the BOD of the Parent Company approved the acquisition of the outstanding shares of FRBI. FRBI representing 84.78% of the outstanding shares of GBI. is a rural bank engaged in deposit-taking, rural credit, and consumer lending services to the public. On February 9, 2012, the Parent Company entered into a Memorandum of Understanding with the majority shareholders of FRBI to acquire all of On August 12, 2011, the BSP approved the acquisition of up to 100.00% of the total outstanding shares of GBI. On the the outstanding shares of FRBI. same date, the BSP approved in-principle the granting of certain incentives to the Parent Company. Subsequently, on January 30, 2012, the Parent Company obtained the final approval of the BSP on the said incentives. On June 20, 2012, the BSP approved the acquisition of up to 100.00% of the total outstanding shares of FRBI. On July 11, 2012, the Parent Company obtained control of FRBI through the purchase of 83.17% of the outstanding capital On August 19, 2011, the Parent Company acquired 84.78% of the voting shares of GBI. It is on this date that the Parent stock of FRBI for P= 34.10 million. The Parent Company acquired additional shares of FRBI amounting to P= 20.00 million, Company effectively obtained control of GBI. Consequently, the Parent Company had a tender offer to acquire the shares of thereby increasing its ownership to 91.58% as of December 31, 2012. On January 23, 2013, the Parent Company acquired the non-controlling shareholders of GBI. The Parent Company acquired non-controlling interest amounting to P=16.91 million, the remaining non- controlling interest amounting to P= 6.90 million, thereby increasing its ownership to 100.00%. thereby increasing its ownership to 90.79% as of December 31, 2011.

The Parent Company has elected to measure the non-controlling interest in the acquiree at fair value. The acquisition provides the Parent Company the opportunity to expand its nationwide footprint, given GBI’s wide network of 46 branches and 94 microfinance-oriented other banking offices, and to pursue the microfinance model of GBI. The fair values of the identifiable assets and liabilities acquired at the date of acquisition are as follows: The Parent Company has elected to measure the non-controlling interest in the acquiree at fair value. Fair Value recognized on The fair values of the identifiable assets and liabilities acquired at the date of acquisition are as follows: acquisition date Fair Value Assets recognized on Cash and other cash items P= 2 4 3 acquisition date Due from BSP 376 Assets Due from other banks 13,779 Cash and other cash items P= 98,503 Investment securities at amortized cost 410 Due from BSP 10,843 Loans and receivables 6,005 318,009 Property and equipment 7, 2 1 9 Due from other banks 1,097,181 Other assets 315 Loans and receivables 28,347 Property and equipment 220,035 Liabilities Investment properties 186,377 Deposit liabilities 9,895 Other assets 33,009 Accrued taxes, interest and other expenses 383 1,963,957 Other liabilities 547 Liabilities 10,825 Deposit liabilities 1,193,553 Fair value of net assets acquired P= 17,522 Bills payable 1,062,878 Unsecured subordinated debt 111,282 Accrued taxes, interest and other expenses 206,388 The goodwill recognized by the Parent Company can be attributed to the synergy potentially to be gained by the Other liabilities 26,633 microfinance business from the planned integration of GBI and FRBI. 2,600,734 Fair value of net liabilities acquired (P= 636,777) Consideration transferred P= 3 4 , 0 9 8 Non-controlling interest measured at fair value 6,902 In addition to the above identifiable assets and liabilities, the Group recognized the fair value of branch licenses acquired as a Fair value of the net assets acquired (17,522) result of the business combination amounting to P=625.40 million and the related deferred tax liability of P=187.62 million. Goodwill P=23,478

Fair Value Analysis of cash flows on acquisition: recognized on acquisition date Consideration transferred P= 3 4 , 0 9 8 Consideration transferred P=158,548 Net cash acquired with the subsidiary* (14,398) Non-controlling interest measured at fair value 16,452 Net cash outflow (included in cash flows from Fair value of net liabilities acquired, including investing activities) P= 1 9 , 7 0 0 the fair value of branch licenses, net of *includes Cash and other cash items, Due from BSP and Due from other banks. deferred tax liability 198,996 Goodwill P=373,996 From the date of acquisition to December 31, 2012, the total operating income and net loss of FRBI consolidated to the Group amounted to P=3.00 million and P=0.29 million, respectively. The goodwill recognized by the Parent Company can be attributed to factors such as increase in geographical presence and customer base due to branch licenses acquired. If the acquisition had taken place at the beginning of the year, the Group’s total operating income would have increased by P=2.03 million while net income before tax would have increased by P=0.02 million.

120 2013 ANNUAL REPORT They’ve Got Something to Talk About 121 Analysis of cash flows on acquisition: Investment securities at amortized cost As of December 31, 2013 and 2012, investment securities at amortized cost of the Group and of the Parent Company Consideration transferred P=158,548 consist of: Net cash acquired with the subsidiary* (427,355) Consolidated Parent Company Net cash inflow (included in cash flows from 2013 2012 2013 2012 (P=268,807) investing activities) Government securities P=7, 6 6 7, 2 5 4 P=8,253,247 P=7, 6 6 7, 2 5 4 P=8,253,247 *includes Cash and other cash items, Due from BSP and Due from other banks. Private bonds 1,413,066 1,367,258 1,412,653 1,366,848 P=9,080,320 P=9,620,505 P=9,079,907 P=9,620,095 From the date of acquisition to December 31, 2011, the total operating income and net loss of GBI consolidated to the Parent Company amounted to P=89.58 million and P=5.00 million, respectively. Peso-denominated government bonds have effective interest rates ranging from 5.70% to 6.02% in 2013 and 2012, and 5.27% to 12.38% in 2011. Foreign currency-denominated bonds have effective interest rates ranging from 2.87% to 7.07% in If the acquisition had taken place at the beginning of the year, the Group’s total operating income would have decreased by 2013, 2.87% to 8.08% in 2012, and 2.87% to 9.88% in 2011. P=256.35 million while the Group’s net income before tax would have decreased by P=275.61 million. In 2013, the Parent Company sold government securities carried at amortized cost, with aggregate carrying amount of P=1.10 billion, and recognized a gain amounting to P=572.49 million. The gain is presented as Gain on sale of investment securities at amortized cost in the statement of income. The securities were sold to fund the lending requirement for FDC. As a result 8. Trading and Investment Securities of the sale, subsequent acquisitions of investment securities in the portfolio will be classified as financial assets at FVTPL while the remaining securities will remain to be classified as investment securities at amortized cost. As of December 31, The Group and the Parent Company have the following trading and investment securities: 2013, the remaining government securities in the portfolio amounted to P=231.42 million. There were no additions to the Consolidated Parent Company portfolio subsequent to the sale. 2013 2012 2013 2012 In 2012, the Parent Company sold government securities classified as investment securities at amortized cost with aggregate Financial assets at FVTPL P=1,948,703 P=4,260,325 P=1,948,703 P=4,260,325 carrying amount of P=1.29 billion and recognized a gain amounting to P=276.88 million, which is presented as Gain on sale of Financial assets at FVTOCI 10,733 9,982 10,733 9,982 Investment securities at amortized cost 9,080,320 9,620,505 9,079,907 9,620,095 investment securities at amortized cost in the statement of income. The sale was contemplated to secure financing for the Parent Company’s capital expenditures on branch expansion. The Parent Company concluded that the sale is consistent with P=11,039,756 P=13,890,812 P=11,039,343 P=13,890,402 its business model of managing financial assets to collect contractual cash flows.

Financial assets at FVTPL In 2011, the Parent Company participated in a debt exchange program for certain investments in government securities Financial assets at FVTPL of the Group and of the Parent Company consist of: classified as financial assets at FVTPL and at amortized cost. The carrying amount of the financial assets at FVTPL surrendered amounted to P=1.26 billion, and the carrying amount of the investment securities at amortized cost surrendered 2013 2012 amounted to P=3.27 billion. The fair value of the debt securities received amounted to P=4.47 billion, and the Parent Held-for-trading Company recognized Loss on derecognition of investment securities at amortized cost amounting to P=44.44 million and Government securities P=691,437 P=1,805,939 Loss on derecognition of financial assets at FVTPL, included in Trading and securities gain, amounting to P=9.93 million. The Private bonds 543,626 1,206,722 exchange of investment securities at amortized cost was executed because of a change in the debt structure initiated by the Equity securities 713,640 1,247,664 creditor. The management believes that participation in the bond swap is consistent with its business model of managing P=1,948,703 P=4,260,325 financial assets to collect contractual cash flows.

Refer to Note 3 for the judgments made related to the sale and derecognition of investment securities at amortized cost. As of December 31, 2013 and 2012, financial assets at FVTPL include net unrealized gain of P=131.15 million and P=61.84 million, respectively, for the Group and for the Parent Company. Interest income on trading and investment securities follows:

Financial assets at FVTOCI Consolidated Parent Company As of December 31, 2013 and 2012, financial assets at FVTOCI of the Group and of the Parent Company consist of: 2013 2012 2011 2013 2012 2011 2013 2012 Financial assets at FVTPL P=106,912 P= 1 8 5 , 9 6 3 P=444,520 P=106,912 P= 1 8 5 , 9 6 3 P=444,520 Investment securities at amortized cost 426,454 656,299 664,175 426,447 656,298 664,175 Quoted equity securities P= 7 , 4 8 6 P= 6 , 7 3 5 P=533,366 P=842,262 P=1,108,695 P=533,359 P=842,261 P=1,108,695 Unquoted equity securities 3,247 3,247 P= 1 0 , 7 3 3 P=9,982 Trading and securities gain (loss) of the Group and of the Parent Company consists of:

The Group has designated the above equity investments as at FVTOCI because they are held for long-term investments 2013 2012 2011 rather than for trading. The unquoted equity securities pertain to golf shares. Financial assets at FVTPL P=1,005,237 P= 9 8 8 , 1 1 0 P=447,188 Investment securities at amortized cost 572,490 276,883 (44,440) In 2013 and 2012, no dividends were recognized on these equity investments and no cumulative gain or loss was P=1,577,727 P=1,264,993 P=402,748 transferred within equity.

The movements in Net unrealized gain on financial assets at FVTOCI follow: On June 25, 2012, the BOD approved the change in the Parent Company’s business model. Management deemed it necessary to change the way it manages its investment securities because of significant changes in its strategic plans, funding 2013 2012 structure and cash flow profile brought about by the IPO and its branch expansion program. Accordingly, the Parent Company Balance at beginning P= 1 , 1 7 4 P= 2 9 9 made certain reclassifications pursuant to the new business model effective July 1, 2012, resulting in P=711.89 million of Unrealized gains for the year 751 875 Trading and securities gain in the statement of income representing the difference between the aggregate amortized cost of Balance at end P=1,925 P= 1 , 1 7 4 certain securities amounting to P=5.58 billion and their aggregate fair value of P=6.29 billion at the reclassification date. Refer to Note 3 for the discussion on the change in the business model.

122 2013 ANNUAL REPORT They’ve Got Something to Talk About 123 respectively. The Parent Company’s acquisition cost of the installment contracts receivable approximates fair value at the 9. Loans and Receivables acquisition date. In 2012, the Parent Company and FLI also entered into an account servicing and collection agreement wherein the Parent Company would pay service fees equivalent to 1.12% of loan amounts collected by FLI on behalf of Loans and receivables consist of: the Parent Company related to its purchase of installment contracts receivable. The total service fees paid by the Parent Consolidated Parent Company Company to FLI amounted to P=2.58 million and P=1.64 million in 2013 and 2012, respectively (see Note 26). 2013 2012 2013 2012 A reconciliation of the allowance for impairment and credit losses for loans and receivables per class for the Group and the Receivables from customers Parent Company as of December 31, 2013 follows: Corporate lending P=49,015,326 P=34,323,221 P=49,015,326 P=34,323,221 Consumer lending 47,256,601 39,706,955 44,198,217 37,253,268 Consolidated 96,271,927 74,030,176 93,213,543 71,576,489 2013 Unearned discounts (636,865) (1,645,390) (589,681) (1,645,097) Corporate Consumer 95,635,062 72,384,786 92,623,862 69,931,392 Lending Lending Others Total Unquoted debt securities At January 1 P=1,068,639 P=1,429,929 P=655,497 P=3,154,065 Government securities 3 7,1 8 4 33,924 36,563 33,856 Provision for impairment and Private bonds 342,897 341,983 342,897 341,983 credit losses (Note 14) 411,967 2,229,435 354,747 2,996,149 380,081 375,907 379,460 375,839 Write-off (Note 14) (6,210) (1,911,453) (182,855) (2,100,518) Other receivables Interest accrued on impaired loans (47,341) − − (47,341) Accounts receivable 985,244 666,989 1,415,482 1,482,733 At December 31 P=1,427,055 P= 1 , 7 4 7 , 9 1 1 P=827,389 P=4,002,355 Accrued interest receivable 784,853 716,730 723,205 632,578 Specific impairment P=948,461 P= − P= − P=948,461 Sales contracts receivable 177,690 202,394 162,797 180,032 827,389 3,053,894 1,947,787 1,586,113 2,301,484 2,295,343 Collective impairment 478,594 1 ,74 7, 9 1 1 97,962,930 74,346,806 95,304,806 72,602,574 P=1,427,055 P= 1 , 7 4 7 , 9 1 1 P=827,389 P=4,002,355 Allowance for credit and impairment losses Gross amount of individually impaired loans P=963,228 P= − P= − P=963,228 (Note 14) (4,002,355) (3,154,065) (3,975,337) (3,132,624) P=93,960,575 P=71,192,741 P=91,329,469 P=69,469,950 Parent Company 2013 Corporate Consumer Credit card receivables under consumer lending amounted to P=19.41 billion and P=16.28 billion as of December 31, 2013 and Lending Lending Others Total 2012, respectively. At January 1 P=1,068,639 P=1,408,488 P=655,497 P=3,132,624 Provision for impairment and As of December 31, 2012, accounts receivable of the Parent Company includes the Parent Company’s deposits for future credit losses (Note 14) 411,967 2,112,733 354,747 2,879,447 stock subscription in GBI and EWRB amounting to P=700.00 million and P=120.00 million, respectively. In 2013, the (6,210) (1,800,328) application for the increase in authorized capital stock of GBI and EWRB had been approved by the regulators and the Parent Write-off (Note 14) (182,855) (1,989,393) (47,341) − Company’s deposits for future stock subscriptions had been applied to the common stock issued by GBI and EWRB to the Interest accrued on impaired loans − (47,341) P=1,427,055 P=1,720,893 Parent Company (see Note 1). At December 31 P=827,389 P=3,975,337 Specific impairment P=948,461 P= − P= − P=948,461 Receivables from customers consist of: Collective impairment 478,594 1,720,893 827,389 3,026,876 Consolidated Parent Company P=1,427,055 P=1,720,893 P=827,389 P=3,975,337 2013 2012 2013 2012 Gross amount of individually impaired loans P=963,228 P= − P= − P=963,228 Loans and discounts P= 91,645,274 P=70,940,952 P=88,586,890 P=68,487,265 Customers’ liabilities under letters of A reconciliation of the allowance for the impairment and credit losses of loans and receivables per class for the Group and the credit/trust receipts 2,704,310 1,763,323 2,704,310 1,763,323 Parent Company as of December 31, 2012 follows: Bills purchased 1,922,343 1,325,901 1,922,343 1,325,901 P=96,271,927 P=74,030,176 P=93,213,543 P=71,576,489 Consolidated 2012 Corporate Consumer In 2013, the Parent Company entered into a purchase of receivables agreement with EWRB, whereby the Parent Company Lending Lending Others Total purchased, on a without recourse basis, loans receivables of EWRB amounting to P=2.91 billion. The Parent Company’s At January 1 P=1,071,459 P=1,562,535 P=476,049 P=3,110,043 acquisition cost of the loans receivables approximates fair value at the acquisition date. As of December 31, 2013, loans Provision for impairment and and receivables purchased from EWRB, included in Loans and discounts of the Parent Company, amounted to P=2.49 billion. credit losses (Note 14) 38,357 1,292,109 179,448 1,509,914 In connection with the purchase of receivables agreement, the Parent Company and EWRB also entered into an account Write-off (Note 14) − (1,424,715) − (1,424,715) servicing and collection agreement whereby the Parent Company agreed to pay service fees equivalent to 0.37% of the loan Interest accrued on impaired loans (41,177) − − (41,177) amounts collected by EWRB on behalf of the Parent Company. The service fees paid by the Parent Company to EWRB in At December 31 P=1,068,639 P=1,429,929 P=655,497 P=3,154,065 2013 amounted to P=1.67 million (see Note 26). Specific impairment P=632,691 P= − P= − P=632,691 Collective impairment 435,948 1,429,929 655,497 2,521,374 The Parent Company has a memorandum of understanding with Filinvest Land, Inc. (FLI), an entity under common control P=1,068,639 P=1,429,929 P=655,497 P=3,154,065 of FDC, whereby the Parent Company will purchase, on a without recourse basis, installment contracts receivable from FLI. On various dates in 2013 and 2012, several deeds of assignment were executed wherein FLI sold, assigned and transferred Gross amount of individually impaired loans P=933,323 P= − P= − P=933,323 without recourse to the Parent Company all the rights, titles and interest in various loan accounts and the related mortgages. During 2013 and 2012, the total receivables purchased by the Parent Company without recourse under the terms of the foregoing assignment agreement amounted to P=0.27 billion and P=1.81 billion, respectively. Outstanding receivables purchased included in Loans and discounts amounted to P=1.31 billion and P=1.66 billion as of December 31, 2013 and 2012,

124 2013 ANNUAL REPORT They’ve Got Something to Talk About 125 Parent Company The details of the secured and unsecured loans receivables of the Group and of the Parent Company follow: 2012 Corporate Consumer Consolidated Lending Lending Others Total 2013 2012 2013 2012 Gross Gross At January 1 Gross Gross P=1,071,459 P=1,562,535 P=476,049 P=3,110,043 Amount % Amount % Amount % Amount % Provision for impairment and Loans secured by: credit losses (Note 14) 38,357 1,270,668 179,448 1,488,473 Chattel P=10,691,354 11.18 P=8,215,319 1 1.3 5 P=10,691,353 11.54 P=8,215,319 11.75 Write-off (Note 14) − (1,424,715) − (1,424,715) Real estate 12,079,279 12.63 10,683,691 14.76 11,933,785 12.88 10,519,179 15.04 Interest accrued on impaired loans (41,177) − − (41,177) Hold-out on deposit 6,986,624 7. 3 1 594,035 0.82 6,986,624 7. 5 4 594,035 0.85 At December 31 P=1,068,639 P=1,408,488 P=655,497 P=3,132,624 Others 4,455,937 4.66 11,561,516 15.97 4,455,937 4.82 11,561,516 16.53 Specific impairment P=632,691 P= − P= − P=632,691 34,213,194 35.78 31,054,561 42.90 34,067,699 36.78 30,890,049 44.17 Unsecured 64.22 5 7.1 0 63.22 55.83 Collective impairment 435,948 1,408,488 655,497 2,499,993 61,421,868 41,330,225 58,556,163 39,041,343 100.00 P=72,384,786 100.00 P=92,623,862 100.00 P=69,931,392 100.00 P=1,068,639 P=1,408,488 P=655,497 P=3,132,624 P=95,635,062 Gross amount of individually impaired loans P=933,323 P= − P= − P=933,323 Information on the concentration of credit as to industry follows (in millions):

The Parent Company took possession of various properties previously held as collateral with an estimated value of P=563.45 Consolidated million in 2013, P=357.76 million in 2012 and P=358.28 million in 2011 (see Notes 11 and 13). 2013 2012 2013 2012 Gross Gross Gross Gross The following is a reconciliation of the individual and collective allowances for impairment and credit losses on loans and Amount % Amount % Amount % Amount % receivables of the Group and of the Parent Company: Personal consumption P=35,819 3 7. 4 5 P= 26,775 36.99 P=33,295 35.95 P=26,714 38.20 Consolidated Real estate, renting and business activity 14,108 14.75 6,105 8.43 14,096 15.22 6,033 8.63 2013 2012 Wholesale and retail Specific Collective Specific Collective trade 11,871 12.41 10,436 14.42 11,933 12.88 10,295 14.72 Impairment Impairment Total Impairment Impairment Total Manufacturing 6,307 6.60 4,344 6.00 6,298 6.80 4,311 6.16 Financial intermediaries 5,941 6.21 4,570 6.3 1 5,541 5.98 4,499 6.43 At January 1 P=632,691 P=2,521,374 P=3,154,065 P=812,909 P=2,297,134 P=3,110,043 Agriculture, fisheries Provision for impairment and credit losses 369,321 2,626,828 2,996,149 (139,041) 1,648,955 1,509,914 and forestry 1,214 1.27 1,150 1.59 606 0.65 405 0.58 Write-off (2,094,308) (2,100,518) − (1,424,715) (1,424,715) (6,210) Transportation, Interest accrued on impaired loans (47,341) − (47,341) (41,177) − (41,177) storage and At December 31 P=948,461 P=3,053,894 P=4,002,355 P=632,691 P=2,521,374 P=3,154,065 communications 661 0.69 1,346 1.86 658 0.71 1,338 1.91 Others 19,714 20.62 17,659 24.40 20,197 21.81 16,336 23.37 Parent Company P=95,635 100.00 P=72,385 100.00 P=92,624 100.00 P=69,931 100.00 2013 2012 Specific Collective Specific Collective BSP Circular No. 351 allows banks to exclude from nonperforming classification receivables classified as ‘Loss’ in the latest Total Impairment Impairment Impairment Impairment Total examination of the BSP which are fully covered by allowance for credit losses, provided that interest on said receivables shall At January 1 P=632,691 P=2,499,933 P=3,132,624 P=812,909 P=2,297,134 P=3,110,043 not be accrued and that such receivables shall be deducted from the total receivable portfolio for purposes of computing Provision for impairment and credit losses 369,321 2,510,126 2,879,447 (139,041) 1,627,514 1,488,473 NPLs. Subsequently, the BSP issued BSP Circular No. 772, which requires banks to compute their net NPLs by deducting Write-off (6,210) (1,983,183) (1,989,393) − (1,424,715) (1,424,715) the specific allowance for credit losses on the total loan portfolio from the gross NPLs. The specific allowance for credit Interest accrued on impaired loans (47,341) − (47,341) (41,177) − (41,177) losses shall not be deducted from the total loan portfolio in computing the NPL ratio. At December 31 P=948,461 P=3,026,876 P=3,975,337 P=632,691 P=2,499,933 P=3,132,624 As of December 31, 2013 and 2012, NPLs of the Group and of the Parent Company as reported to the BSP follow: Interest income on loans and receivables consist of: Consolidated Parent Company Consolidated Parent Company 2013 2012 2013 2012 2013 2012 2011 2013 2012 2011 Gross NPLs P=5,311,975 P=3,998,592 P=4,648,407 P=3,405,266 Receivables from customers P=9,106,302 P=6,772,393 P=5,389,982 P=8,706,551 P=6,625,128 P=5,319,707 Deductions as required by the BSP (2,743,840) (2,452,419) (2,224,252) (1,943,520) Unquoted debt securities 7,237 21,951 31,242 7,237 21,951 31,224 P=2,568,135 P=1,546,173 P=2,424,155 P=1,461,746 Interest accrued on impaired loans 47,341 41,177 29,006 47,341 41,177 29,006 P=9,160,880 P=6,835,521 P=5,450,230 P=8,761,129 P=6,688,256 P=5,379,937 As of December 31, 2013 and 2012, secured and unsecured NPLs of the Group and of the Parent Company as reported to BSP Reporting the BSP follow: Of the total receivables from customers of the Parent Company as of December 31, 2013, 2012 and 2011, 33.27%, 34.70% Consolidated Parent Company and 37.90%, respectively, are subject to periodic interest repricing. The remaining peso receivables from customers earn 2013 2013 2012 annual fixed interest rates ranging from 1.50% to 40.00%, 2.23% to 23.86% and 2.78% to 18.50% in 2013, 2012 and 2012 2011, respectively, while foreign currency-denominated receivables from customers earn annual fixed interest rates ranging Secured P=2,151,441 P=2,046,874 P=2,016,763 P=1,887,266 from 1.56% to 7.56%, 2.78% to 9.00% and 5.00 % to 8.00% in 2013, 2012 and 2011, respectively. Unsecured 3,160,534 1,951,718 2,631,644 1,518,000 P=5,311,975 P=3,998,592 P=4,648,407 P=3,405,266

126 2013 ANNUAL REPORT They’ve Got Something to Talk About 127 2012 10. Property and Equipment Furniture, Construction Fixtures and Leasehold The composition of and movements in the Group’s property and equipment follow: Land Buildings in Progress Equipment Improvements Total Cost 2013 As of January 1 P=263,804 P= 7 0 , 1 1 7 P= 5 3 7 , 7 9 2 P=1,288,664 P=888,596 P=3,048,973 Furniture, Additions − 144,592 55,017 243,696 710,411 1,153,716 Fixtures and Leasehold Reclassification − 592,809 (592,809) − − − Land Buildings Equipment Improvements Total Disposals − − − (27,095) − (27,095) Cost As of December 31 263,804 8 0 7, 5 1 8 − 1,505,265 1,599,007 4,175,594 Accumulated Depreciation and Amortization As of January 1 P=298,692 P= 9 1 9 , 9 3 4 P=1,528,710 P=1,614,702 P=4,362,038 As of January 1 − 20,883 − 883,914 410,222 Additions − 62,557 421,945 731,619 1,216,121 1,315,019 Depreciation and amortization − 11,040 − 188,155 110,449 Disposals (8,199) (23,193) (87,699) (34,202) (153,293) 309,644 − − (21,601) As of December 31 290,493 959,298 1,862,956 2,312,119 5,424,866 Disposals − − (21,601) Accumulated Depreciation and Amortization As of December 31 − 31,923 − 1,050,468 520,671 1,603,062 Net Book Value P=1,078,336 As of January 1 − 53,710 1,043,391 524,248 1,621,349 P=263,804 P=775,595 P= − P=454,797 P=2,572,532 Depreciation and amortization − 30,080 254,690 182,046 466,816 Disposals − (6,323) (76,967) (34,174) (117,464) As of December 31 − 77,467 1,221,114 672,120 1,970,701 As of December 31, 2013 and 2012, the cost of fully depreciated property and equipment still in use by the Parent Company Allowance for Impairment Losses (Note 14) amounted to P=862.55 million and P=389.24 million, respectively. Provision during the year − 1,955 − − 1,955 Disposals − (531) − − (531) In 2007, the Parent Company entered into a memorandum of agreement with FDC for the construction of a building in As of December 31 − 1,424 − − 1,424 The Fort Global City, Taguig. The Parent Company’s cash contribution for the construction of the building was recorded as P=3,452,741 Net Book Value P=290,493 P=880,407 P=641,842 P=1,639,999 Construction in Progress. In 2012, the construction was completed and the building became the new principal place of business of the Parent Company. The amounts recorded as Construction in Progress amounting to P=592.81 million was 2012 transferred to the Buildings account. Furniture, Construction Fixtures and Leasehold Land Buildings in Progress Equipment Improvements Total Cost 11. Investment Properties As of January 1 P=313,981 P=134,773 P= 5 3 7 , 7 9 2 P=1,360,394 P= 9 4 7 , 1 9 2 P=3,294,132 Additions 5,131 195,622 55,017 247,834 718,020 1,221,624 The composition of and movements in the Group’s investment properties follow: Acquisitions from business combination 6,532 466 − 221 − 7, 2 1 9 2013 Reclassification − 592,809 (592,809) − − − Disposals (26,952) (3,736) − (79,739) (50,510) (160,937) Buildings and As of December 31 298,692 919,934 − 1,528,710 1,614,702 4,362,038 Land Improvements Total Accumulated Depreciation and Amortization Cost As of January 1 − 37,531 − 883,914 424,970 1,346,415 At January 1 P=796,858 P=502,897 P=1,299,755 Depreciation and amortization − 16,179 − 203,172 125,616 340,967 Additions 209,064 134,486 343,550 Disposals − − − (43,695) (22,338) (66,033) Disposals (158,918) (65,711) (224,629) As of December 31 − 53,710 − 1,043,391 524,248 1,621,349 At December 31 847,004 571,672 1,418,676 Net Book Value P=298,692 P=866,224 P= − P=485,319 P=1,090,454 P=2,740,689 Accumulated Depreciation and Amortization As of December 31, 2013 and 2012, the cost of fully depreciated property and equipment still in use by the Group At January 1 − 218,281 218,281 amounted to P=981.12 million and P=453.54 million, respectively. Depreciation and amortization − 50,250 50,250 Disposals − (20,300) (20,300) The composition of and movements in the Parent Company’s property and equipment follow: At December 31 − 248,231 248,231 Accumulated Impairment Losses (Note 14) At January 1 129,728 14,098 143,826 Furniture, Provisions during the year 34,529 Fixtures and Leasehold 19,090 15,439 Land Buildings Equipment Improvements Total Disposals (6,156) (8,470) (14,626) Cost At December 31 142,662 21,067 163,729 As of January 1 P=263,804 P= 8 0 7 , 5 1 8 P=1,505,265 P=1,599,007 P=4,175,594 Net Book Value P=704,342 P=302,374 P=1,006,716 Additions − 61,281 401,358 725,967 1,188,606 Disposals − − (49,972) − (49,972) 2012 As of December 31 263,804 868,799 1,856,651 2,324,974 5,314,228 Accumulated Depreciation and Amortization Buildings and As of January 1 − 31,923 1,050,468 520,671 1,603,062 Land Improvements Total Depreciation and amortization − 22,639 240,835 176,337 439,811 Disposals − − (49,276) − (49,276) Cost As of December 31 − 54,562 1,242,027 697,008 1,993,597 At January 1 P=928,979 P=505,500 P=1,434,479 Net Book Value P=263,804 P=814,237 P=614,624 P=1,627,966 P=3,320,631 Additions 5 7,1 1 2 69,694 126,806 Disposals (189,233) (72,297) (261,530) At December 31 796,858 502,897 1,299,755

(Forward)

128 2013 ANNUAL REPORT They’ve Got Something to Talk About 129 2012 Buildings and The aggregate fair value of the investment properties of the Group amounted to P=1.42 billion as of December 31, 2013 Land Improvements Total and 2012. The aggregate fair value of the investment properties of the Parent Company amounted to P=1.05 billion as of Accumulated Depreciation and December 31, 2013 and 2012. Fair value has been determined based on valuations made by independent and/or in-house Amortization appraisers. Valuations were derived on the basis of recent sales of similar properties in the same area as the investment At January 1 − 184,044 184,044 properties taking into account the economic conditions prevailing at the time the valuations were made. Depreciation and amortization − 51,160 51,160 Disposals − (16,923) (16,923) As of December 31, 2013 and 2012, the carrying values of foreclosed investment properties of the Parent Company still At December 31 − 218,281 218,281 subject to redemption period by the borrower amounted to P=153.70 million and P=73.95 million, respectively. Accumulated Impairment Losses (Note 14) At January 1 139,204 26,077 165,281 Direct operating expenses from investment properties not generating rent income amounted to Provisions during the year 32,408 12,155 44,563 P=49.33 million, P=69.87 million and P=58.73 million for the Group in 2013, 2012 and 2011, respectively, and P=43.57 Disposals (41,884) (24,134) (66,018) million, P=64.75 million and P=55.96 million for the Parent company in 2013, 2012 and 2011, respectively. At December 31 129,728 14,098 143,826 Net Book Value P=667,130 P=270,518 P=937,648 12. Goodwill and Other Intangible Assets The composition of and movements in the Parent Company’s investment properties follow: 2013 As of December 31, 2013 and 2012, the intangible assets of the Group consist of:

Buildings and 2013 Land Improvements Total Branch Customer Core Capitalized Cost Goodwill Licenses Relationship Deposits Software Total At January 1 P=648,861 P=462,835 P=1,111,696 Cost Additions 105,233 110,897 216,130 As of January 1, 2013 P=1,316,728 P=1,447,400 P=154,626 P=40,433 P= 7 9 4 , 7 5 8 P=3,753,945 Disposals (30,552) (61,852) (92,404) Acquisitions − 214,800 − − 183,115 3 9 7, 9 1 5 At December 31 723,542 511,880 1,235,422 As of December 31, 2013 Accumulated Depreciation and 1,316,728 1,662,200 154,626 40,433 977,873 4,151,860 Accumulated Amortization Amortization As of January 1, 2013 − − 1 7, 6 3 9 14,387 322,068 354,094 At January 1 − 2 0 7, 8 8 6 2 0 7, 8 8 6 Amortization − − 3,199 5,155 133,677 142,031 Depreciation and amortization − 43,691 43,691 As of December 31, 2013 − − 20,838 19,542 455,745 496,125 Disposals − (19,683) (19,683) Net Book Value P=1,316,728 P=1,662,200 P= 1 3 3 , 7 8 8 P=20,891 P=522,128 P=3,655,735 At December 31 − 231,894 231,894 Accumulated Impairment Losses (Note 14) At January 1 156,111 1 7, 3 6 4 173,475 2012 Provisions during the year 15,913 15,333 31,246 Branch Customer Core Capitalized Disposals (4,454) (8,162) (12,616) Goodwill Licenses Relationship Deposits Software Total At December 31 167,570 24,535 192,105 Cost Net Book Value P=555,972 P= 2 5 5 , 4 5 1 P=811,423 As of January 1, 2012 P=1,293,250 P= 6 2 5 , 4 0 0 P= 1 5 4 , 6 2 6 P= 4 0 , 4 3 3 P=546,589 P=2,660,298 From business combination 23,478 − − − − 23,478 2012 Acquisitions − 822,000 − − 248,169 1,070,169 Buildings and As of December 31, 2012 1,316,728 1,447,400 154,626 40,433 794,758 3,753,945 Land Improvements Total Accumulated Amortization Cost As of January 1, 2012 − − 13,328 10,344 200,447 224,119 At January 1 P= 7 5 1 , 7 1 0 P=459,648 P=1,211,358 Amortization − − 4,311 4,043 121,621 129,975 Additions 36,415 65,874 102,289 As of December 31, 2012 − − 1 7, 6 3 9 14,387 322,068 354,094 Disposals (139,264) (62,687) (201,951) Net Book Value P=1,316,728 P=1,447,400 P= 1 3 6 , 9 8 7 P=26,046 P=472,690 P=3,399,851 At December 31 648,861 462,835 1,111,696 Accumulated Depreciation and Amortization As of December 31, 2013 and 2012, the intangible assets of the Parent Company consist of: At January 1 − 179,389 179,389 Depreciation and amortization − 44,428 44,428 2013 Disposals − (15,931) (15,931) Branch Customer Core Capitalized At December 31 − 2 0 7, 8 8 6 2 0 7, 8 8 6 Goodwill Licenses Relationship Deposits Software Total Accumulated Impairment Losses (Note 14) Cost At January 1 139,204 26,663 165,867 As of January 1, 2013 P=919,254 P=822,000 P=154,626 P=40,433 P=783,147 P=2,719,460 Provisions during the year 30,887 12,155 43,042 Acquisitions − 214,800 − − 179,989 394,789 Disposals (13,980) (21,454) (35,434) As of December 31, 2013 919,254 1,036,800 154,626 40,433 963,136 3,114,249 At December 31 156,111 1 7, 3 6 4 173,475 Accumulated Amortization Net Book Value P= 4 9 2 , 7 5 0 P=237,585 P=730,335 As of January 1, 2013 − − 1 7, 6 3 9 14,387 316,892 348,918 Amortization − − 3,199 5,155 129,947 138,301 The Group’s and the Parent Company’s investment properties consist entirely of real estate properties and land As of December 31, 2013 − − 20,838 19,542 446,839 4 8 7, 2 1 9 improvements acquired in settlement of loans and receivables. Net Book Value P=919,254 P=1,036,800 P= 1 3 3 , 7 8 8 P=20,891 P=516,297 P=2,627,030

130 2013 ANNUAL REPORT They’ve Got Something to Talk About 131 2012 Branch Customer Core Capitalized Capitalized Software Goodwill Licenses Relationship Deposits Software Total Capitalized software pertains to computer software licenses and programs acquired by the Group and Parent Company for its banking operations. Included in the 2013 and 2012 acquisitions are software licenses acquired by the Group for the upgrade Cost of its core banking systems amounting to P=153.66 million and P=202.33 million, respectively. As of January 1, 2012 P=919,254 P=− P= 1 5 4 , 6 2 6 P= 4 0 , 4 3 3 P=536,459 P=1,650,772 Acquisitions − 822,000 − − 246,688 1,068,688 As of December 31, 2012 919,254 822,000 154,626 40,433 783,147 2,719,460 13. Other Assets Accumulated Amortization As of January 1, 2012 − − 13,328 10,344 199,588 223,260 This account consists of: Amortization − − 4,311 4,043 1 1 7, 3 0 4 125,658 Consolidated Parent Company As of December 31, 2012 − − 1 7, 6 3 9 14,387 316,892 348,918 As of December 31 Net Book Value P=919,254 P=822,000 P= 1 3 6 , 9 8 7 P=26,046 P=466,255 P=2,370,542 2013 2012 2013 2012 Security deposits P=195,835 P=373,612 P=189,098 P=366,653 Other repossessed assets 172,646 134,877 172,646 134,877 Goodwill Card acquisition costs 136,555 125,435 136,555 125,435 The acquisition of EWRB in 2012 resulted in goodwill amounting P=23.48 million, which has been allocated to EWRB Prepaid expenses 99,326 85,023 95,819 78,546 (see Note 7). Returned cash and other cash items 39,536 35,735 39,301 35,493 Documentary stamps 36,893 38,490 36,893 32,314 The acquisition of GBI in 2011 resulted in goodwill amounting to P=374.00 million. The goodwill has been allocated to Derivative assets (Note 5) 90 41,316 90 41,316 branch operations of GBI (see Note 7). Miscellaneous 284,274 174,547 275,562 170,045 965,155 1,009,035 945,964 984,679 As discussed in Note 1, on October 31, 2013, GBI transferred certain assets and liabilities to EWRB. The assets and Allowance for impairment losses (Note 14) (67,656) (51,574) (67,656) (51,574) liabilities transferred include the branches where the goodwill from the acquisition of GBI had been allocated. The branches P=897,499 P=957,461 P=878,308 P= 9 3 3 , 1 0 5 coming from GBI were combined with the branch operations of EWRB after the transfer. Consequently, the goodwill from the acquisition of EWRB and GBI amounting to P=23.48 million and P=374.00 million, respectively are now allocated to the branch operations of EWRB, which is now considered as a single CGU for purposes of impairment testing. Miscellaneous assets consist mainly of suspense accounts, unused stationery and supplies.

The business combination between the Parent Company and AIG Philam Savings Bank (AIGPASB) Group in 2009 The movements in the allowance for impairment losses on other assets of the Group and of the Parent Company follow: resulted in goodwill amounting to P=769.04 million, which has been allocated to the auto and credit cards lending unit acquired from the AIGPASB Group. 2013 2012 Accumulated Impairment Losses The business combination between the Parent Company and Ecology Savings Bank (ESBI) in 2003 resulted in goodwill As of January 1 P=51,574 P=58,804 amounting to P=172.80 million, which has been allocated to various branches acquired from ESBI. As of December 31, Provision during the year 65,008 3,334 2013 and 2012, the carrying amount of goodwill, after impairment recognized in prior years, amounted to P=150.21 million. Reversal of allowance from disposals (31,506) (4,265) Write-off (17,420) (6,299) Key assumptions used in value in use calculations As of December 31 P= 6 7 , 6 5 6 P=51,574 The recoverable amount of the consumer business lending and branch units have been determined based on value in use calculations using cash flow projections based on financial budgets approved by the management covering a five-year period. The discount rates applied to the cash flow projections is 13.09% and 12.71% in 2013 and 2012, respectively. The movements in other repossessed assets of the Group and of the Parent Company follow:

Discount rates 2013 2012 Discount rates reflect the current market assessment of the risk specific to each CGU. Cost As of January 1 P=159,176 P=97,873 Sensitivity to changes in assumptions Additions 3 4 7, 3 1 6 255,475 Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying Disposals (300,246) (194,172) value of the units to exceed their recoverable amount. As of December 31 206,246 159,176 Accumulated Depreciation Customer Relationship and Core Deposits As of January 1 24,299 11,961 The business combination between the Parent Company and AIG Philam Savings Bank (AIGPASB) Group in 2009 Depreciation and amortization 58,549 38,945 resulted in acquisition of customer relationship and core deposits amounting to P=154.63 million and P=40.43 million, Disposals (49,248) (26,607) respectively. As of December 31 33,600 24,299 Net Book Value, gross of impairment 172,646 134,877 Branch Licenses Accumulated Impairment Losses Branch licenses of the Group amounting to P=1.66 billion as of December 31, 2013 represents: 10 branch licenses As of January 1 15,656 6,936 acquired by the Parent Company from the BSP amounting to P=214.80 million in 2013; 42 branch licenses acquired by Provision during the year 26,302 12,985 the Parent Company from the BSP amounting to P=822.00 million in 2012; and 46 branch licenses acquired by the Disposals (31,506) (4,265) Parent Company from the acquisition of GBI amounting to P=625.40 million in 2011. As of December 31 10,452 15,656 Net Book Value, net of impairment P=162,194 P=119,221 Branch licenses of the Parent Company amounting to P=1.04 billion as of December 31, 2013 represents: 10 branch licenses acquired by the Parent Company from the BSP amounting to P=214.80 million in 2013; and 42 branch licenses acquired by the Parent Company from the BSP amounting to P=822.00 million in 2012.

132 2013 ANNUAL REPORT They’ve Got Something to Talk About 133 The movements in unamortized net premium (discount) as of December 31, 2013 and 2012 follow: 14. Allowance for Impairment and Credit Losses 2013 2012 Details of and changes in the allowance for impairment and credit losses follow: Beginning balance (P=10,643) P= − Premium (discount) of issuance during the year 99,496 (10,678) Consolidated Parent Company Amortization during the year (21,288) 35 2013 2012 2013 2012 Ending balance P= 6 7 , 5 6 5 (P=10,643) Balances at the beginning of year Due from BSP P= − P=27,016 P= − P=27,016 Loans and receivables (Note 9) 3,154,065 3,110,043 3,132,624 3,110,043 Investment properties (Note 11) 143,826 165,281 173,475 165,867 16. Bills and Acceptances Payable Other assets (Note 13) 51,574 58,804 51,574 58,804 Consolidated Parent Company 3,349,465 3,361,144 3,357,673 3,361,730 Provisions charged to current operations 2013 2012 2013 2012 (Notes 9, 10, 11 and 13) 3,097,641 1,530,795 2,975,701 1,507,833 Banks and other financial institutions P=3,274,219 P=5,536,528 P=3,274,224 P=5,536,528 Interest accrued on impaired loans (47,341) (41,177) (47,341) (41,177) Outstanding acceptances 5,903 34,859 5,903 34,859 Write-off of loans and receivables (2,100,518) (1,424,715) (1,989,393) (1,424,715) BSP 8,813 − 8,813 − Reversal of allowance on disposals P=3,288,935 P=5,571,387 P=3,288,940 P=5,571,387 of property and equipment, investment properties and other repossessed other assets (Notes 10, 11 and 13) (46,663) (70,283) (44,122) (39,699) As of December 31, 2013 and 2012, investments in government securities of the Parent Company (included in Investment Write-off of other assets (17,420) (6,299) (17,420) (6,299) securities at amortized cost in the statements of financial position) with face value of P=2.90 billion and P=4.74 billion, Balances at the end of year respectively, and fair value of P=3.44 billion and P=5.40 billion, respectively, were pledged with other banks as collateral for Due from BSP − − − − borrowings amounting to P=2.83 million and P=4.57 billion, respectively. Loans and receivables (Note 9) 4,002,355 3,154,065 3,975,337 3,132,624 Property and equipment (Note 10) 1,424 − − − Bills payable to the BSP, other banks and other financial institutions are subject to annual interest rates ranging from 0.60% Investment properties (Note 11) 163,729 143,826 192,105 173,475 to 3.50% in 2013, 0.65% to 5.00% in 2012, and 2.63% to 4.00% in 2011. Other assets (Note 13) 6 7, 6 5 6 51,574 6 7, 6 5 6 51,574 The Group’s interest expense on bills and acceptances payable amounted to P=40.23 million in 2013, P=66.85 million in P=4,235,164 P=3,349,465 P=4,235,098 P=3,357,673 2012 and P=147.26 million in 2011. The Parent Company’s interest expense on bills and acceptances payable amounted to P=38.85 million in 2013 and P=70.40 million in 2012 and P=133.41 million in 2011.

15. Deposit Liabilities 1 7. Accrued Taxes, Interest and Other Expenses Non-FCDU deposit liabilities are subject to liquidity reserve equivalent to 11.00% starting July 15, 2005 (under BSP Circular No. 491), and statutory reserve equivalent to 10.00% starting August 5, 2011 (under BSP Circular No. 732). Prior to This account consists of: August 5, 2011, statutory reserve equivalent was 9.00%. In accordance with BSP Circular No. 753 issued in 2012, reserve Consolidated Parent Company requirement effective on the April 6, 2012 reserve week shall be 18.00% for deposits and deposit substitutes and 3.00% for long-term negotiable certificates of deposits. As of December 31, 2013 and 2012, the Parent Company is in compliance 2013 2012 2013 2012 with such regulations. Accrued expenses P=758,361 P=640,305 P=743,424 P=498,407 Accrued interest payable 223,663 247,653 2 1 7, 9 7 6 236,574 Due from BSP of the Parent Company amounting to P= 15.89 billion and P= 12.99 billion were set aside as reserves as of Accrued other taxes 56,151 68,105 50,211 45,530 December 31, 2013 and 2012, respectively. P=1,038,175 P=956,063 P=1,011,611 P=780,511

Of the total deposit liabilities of the Parent Company as of December 31, 2013, 2012 and 2011, about 42.93%, 46.28% and 61.73%, respectively, are subject to periodic interest repricing. The remaining deposit liabilities earn annual fixed Accrued expenses pertain to accruals of various operating expenses such as rent, utilities, management and professional interest rates ranging from 3.25% to 9.50% in 2013, 1.21% to 5.23% in 2012, and 1.28% to 6.61% in 2011. fees, employee bonus and other expenses of similar nature. As of December 31, 2013 and 2012, accrued expenses also includes net retirement obligation amounting to P=1.36 million and P=27.04 million, respectively, for the Group, and P=1.20 The Group’s interest expense on deposit liabilities amounted to P= 1.17 billion in 2013, P= 1.42 billion in 2012 and P= 1.48 billion million and P=8.93 million, respectively, for the Parent Company (see Note 24). in 2011. The Parent Company’s interest expense on deposit liabilities amounted to P= 1.04 billion in 2013, P= 1.39 billion in 2012 and P= 1.47 billion in 2011.

Long-term Negotiable Certificates of Deposits due 2018 (LTNCD Series 1) 18. Subordinated Debt In 2013 and 2012, the Parent Company issued 5.00% fixed coupon rate (average EIR of 4.37%) unsecured LTNCD maturing on May 18, 2018. The first tranche of the LTNCD Series 1 amounting to P= 1.53 billion was issued at a discount on The Group’s and the Parent Company’s subordinated debt consists of (in millions): November 23, 2012, and the second to seventh tranches aggregating to P= 3.12 billion were issued at a premium in February Consolidated Parent Company to May 2013. The net premium, net of debt issue costs, related to the issuance of the LTNCD Series 1 in 2013 and 2012 amounted to P= 107.91 million and P= 10.64 million, respectively. 2013 2012 2013 2012 Lower Tier 2 unsecured subordinated notes due 2021 P=1,500 P=1,500 P=1,500 P=1,500 Long-term Negotiable Certificates of Deposits due 2019 (LTNCD Series 2) Lower Tier 2 unsecured subordinated notes due 2019 1,250 1,250 1,250 1,250 In 2013, the Parent Company issued 3.25% fixed coupon rate (average EIR of 3.48%) unsecured LTNCD maturing on Lower Tier 2 unsecured subordinated notes due 2018 113 114 − − June 9, 2019. The first to third tranches of the LTNCD Series 2 aggregating to P= 0.74 billion were issued in December 2013. P=2,863 P=2,864 P= 2 , 7 5 0 P= 2 , 7 5 0 The discount, net of debt issue costs related to the issuance of the LTNCD Series 2 in 2013 amounted to P= 8.42 million.

134 2013 ANNUAL REPORT They’ve Got Something to Talk About 135 Lower Tier 2 unsecured subordinated notes due 2021 per annum, whichever is higher, subject to allowable interest rate step-up regulation of the BSP. Upon resetting in On July 2, 2010, the Parent Company issued 7.50% coupon rate Lower Tier 2 unsecured subordinated note (the 2021 2013, the interest rate has been fixed at 10.72%. Notes) with par value of P=1.50 billion, maturing on January 2, 2021 but callable on January 2, 2016, and with step-up in interest if not called. c. The 2018 Notes are neither secured nor covered by a guarantee by GBI or related party of GBI or other arrangement that legally or economically enhances the priority of the claim of any holder of the 2018 Notes as against depositors and Unless the 2021 Notes are previously redeemed, the 2021 Notes are repayable to the Noteholders at 100.00% of their other creditors. face value or at par on the maturity date of January 2, 2021. d. The 2018 Notes shall not have a priority claim, in respect of principal and coupon payments in the event of winding up From and including the issue date to, but excluding the optional redemption date of January 2, 2016, the 2021 Notes of the Issuer, which is higher than or equal with that of depositors and other creditors. bear interest at the rate of 7.50% per annum and shall be payable semi-annually in arrears on January 2 and July 2 of each year, commencing on January 2, 2011. Unless the 2021 Notes are previously redeemed, the interest rate from and e. The 2018 Notes cannot be terminated by LBP before maturity date. including January 2, 2016 to, but excluding January 2, 2021, will be reset and such Step-Up interest shall be payable semi-annually in arrears on January 2 and July 2 of each year, commencing on July 2, 2016. f. LBP cannot set off any amount that it may owe to GBI against the 2018 Notes.

The Step-Up interest rate shall be computed as the higher of: g. The payment of principal may be accelerated only in the event of insolvency of GBI.

a. 80.00% of the 5-year on-the-run Philippine Treasury benchmark bid yield (PDST-F) on optional redemption date plus h. The coupon rate or the formulation for calculating coupon payments shall be fixed at the time of the issuance of the the Step-Up spread of 3.44% per annum. The Step-Up spread is defined as follows: 2018 Notes and may not be linked to the credit standing of GBI.

Step-Up spread = 150.00% of the difference between the Interest Rate and 80.00% of the 5-year PDST-F on the The Group’s interest expense on subordinated debt amounted to P=232.16 million in 2013, P=232.36 million in 2012 and Pricing Date, preceding the initial Issue Date, equivalent to 3.44% per annum. P=223.96 million in 2011. The Parent Company’s interest expense on subordinated debt amounted to P=220.31 million in 2013, 2012 and 2011. b. 150.00% of the difference between the interest rate and the 5-year PDST-F on the pricing date preceding the initial issue date plus the 5-year PDST-F on the optional redemption date. The movements in unamortized premium in 2013 and 2012 are as follows:

Lower Tier 2 unsecured subordinated notes due 2019 2013 2012 On July 25, 2008, the Parent Company issued 8.63% coupon rate Lower Tier 2 unsecured subordinated note (the 2019 Beginning balance P=8,413 P=1,095,337 Notes) with par value of P=1.50 billion, maturing on January 26, 2019 but callable on January 25, 2014, and with step-up Amortization (8,413) (1,086,924) in interest if not called. Ending balance P= – P=8,413 Unless the 2019 Notes are previously redeemed, the 2019 Notes are repayable to the Noteholders at 100.00% of their face value or at par on the maturity date of January 26, 2019.

From and including the issue date to, but excluding the optional redemption date of January 25, 2014, the 2019 Notes 19. Other Liabilities bear interest at the rate of 8.63% per annum and shall be payable semi-annually in arrears on January 25 and July 25 of each year, commencing on January 25, 2009. Unless the 2019 Notes are previously redeemed, the interest rate from This account consists of: and including January 25, 2014 to, but excluding January 26, 2019, will be reset and such Step-Up interest shall be Consolidated Parent Company payable semi-annually in arrears on January 25 and July 25 of each year, commencing on July 25, 2014. 2013 2012 2013 2012 The Step-Up rate shall be computed as the higher of: Bills purchased-contra P=1,363,885 P=1,282,201 P=1,363,885 P=1,282,201 Accounts payable 1,223,604 7 0 7, 9 6 1 1,102,960 7 0 7, 3 2 4 a. 80.00% of the 5-year on-the-run Philippine Treasury benchmark bid yield (PDST-F) on optional redemption date plus Deferred revenue 381,376 271,142 381,376 271,142 the Step-Up spread. The Step-Up spread is defined as follows: Retention payable 174,451 132,781 174,451 132,781 Payment orders payable 52,844 18,501 52,844 18,501 Step-Up spread = 150.00% [8.25% - 80.00% (5-year PDST-F on the pricing date before the initial issue date)] Withholding tax payable 52,202 64,025 49,846 61,693 Derivative liabilities (Note 5) 22,017 97,684 22,017 97,684 b. 150.00% of the difference between the interest rate and the 5-year PDST-F on the pricing date preceding the initial Miscellaneous 326,998 165,648 326,261 1 5 7, 3 0 0 issue date plus the 5-year PDST-F on the optional redemption date. P=3,597,377 P=2,739,943 P=3,473,640 P=2,728,626

Lower Tier 2 unsecured subordinated notes due 2018 Deferred revenue pertains to deferral and release of loyalty points program transactions and membership fees and dues. On March 12, 2008, GBI issued 9.72% per annum Lower Tier 2 unsecured subordinated notes (the 2018 Notes) in favor Miscellaneous liabilities consist mainly of Social Security System pension of the Group’s clients for remittance and suspense of Land Bank of the Philippines (LBP) with par value of P=112.50 million, maturing on March 13, 2018 but callable on accounts. March 13, 2013, and with step-up in interest if not called. The issuance of the 2018 Notes under the terms approved by the BOD was approved by the BSP on February 14, 2008.

Among the significant terms and conditions of the issuance of the Notes are:

a. The 2018 Notes must be issued and fully paid up. Only the net proceeds received from the issuance of the 2018 Notes shall be included as capital.

b. The 2018 Notes bear interest at 9.72% per annum for the first five years of the term, payable quarterly. On the next 5 years, the rate will be reset at 5-year PDST-F at the time of extension plus a spread of 4.00% per annum or 10.00%

136 2013 ANNUAL REPORT They’ve Got Something to Talk About 137 Parent Company 20. Maturity Analysis of Assets and Liabilities 2013 2012 Less than Over Less than Over The following tables show an analysis of assets and liabilities analyzed according to whether they are expected to be 12 months 12 months Total 12 months 12 months Total recovered or settled within one year and beyond one year from the statement of financial position date: Financial Assets Cash and other cash items P=3,811,185 P= − P=3,811,185 P=3,180,497 P= − P=3,180,497 Consolidated Due from BSP 18,404,125 − 18,404,125 21,789,239 − 21,789,239 2013 2012 Due from other banks 1,604,404 − 1,604,404 1,524,815 − 1,524,815 IBLR 3,116,529 − 3,116,529 582,648 − 582,648 Over Less than Over Less than Financial assets at FVTPL 12 months 12 months Total 12 months 12 months Total (Note 8) 1,948,703 − 1,948,703 4,260,325 − 4,260,325 Financial Assets AFS investments (Note 8) − − − − − − Cash and other cash items P= 3,884,538 P= − P=3,884,538 P=3,235,161 P= − P=3,235,161 Investments at FVTOCI Due from BSP 18,537,655 − 18,537,655 21,855,275 − 21,855,275 (Note 8) − 10,733 10,733 − 9,982 9,982 Due from other banks 1,751,824 − 1,751,824 1,637,917 − 1,637,917 Investment securities at IBLR 3,116,529 − 3,116,529 582,648 − 582,648 amortized cost (Note 8) − 9,079,907 9,079,907 − 9,620,095 9,620,095 Financial assets at FVTPL Loans and receivables - gross (Note 8) 1,948,703 − 1,948,703 4,260,325 − 4,260,325 (Note 9) 56,509,839 39,384,648 95,894,487 41,559,056 32,688,615 74,247,671 Investments at FVTOCI 85,394,785 48,475,288 133,870,073 72,896,580 42,318,692 115,215,272 (Note 8) − 10,733 10,733 − 9,982 9,982 Nonfinancial Assets Investment securities at Investment in subsidiaries amortized cost (Note 8) − 9,080,320 9,080,320 − 9,620,505 9,620,505 (Note 7) − 1,409,449 1,409,449 − 241,072 241,072 Loans and receivables - gross Property and equipment (Note 9) 57,216,009 41,383,786 98,599,795 42,495,232 33,496,964 75,992,196 (Note 10) − 3,320,631 3,320,631 − 2,572,532 2,572,532 86,455,258 50,474,839 136,930,097 74,066,558 43,127,451 1 1 7,1 9 4 , 0 0 9 Investment properties (Note 11) − 811,423 811,423 − 730,335 730,335 Nonfinancial Assets Deferred tax assets (Note 23) − 1,176,342 1,176,342 − 1,146,176 1,146,176 Property and equipment Goodwill and other intangible (Note 10) − 3,452,741 3,452,741 − 2,740,689 2,740,689 assets (Note 12) − 2,627,030 2,627,030 − 2,370,542 2,370,542 Investment properties (Note 11) − 1,006,716 1,006,716 − 937,648 937,648 Other assets (Note 13) 307,628 570,680 878,308 1 8 7,1 3 5 745,970 933,105 Deferred tax assets (Note 23) − 995,125 995,125 − 973,137 973,137 307,628 9,915,555 10,223,183 1 8 7,1 3 5 7,806,627 7,993,762 Goodwill and other intangible 85,702,413 58,390,843 144,093,256 73,083,715 50,125,319 123,209,034 assets (Note 12) − 3,655,735 3,655,735 − 3,399,851 3,399,851 Allowances for impairment and Other assets (Note 13) 307,628 589,871 897,499 1 8 7,1 3 5 770,326 957,461 credit losses on loans and 307,628 9,700,188 10,007,816 1 8 7,1 3 5 8,821,651 9,008,786 receivable (Note 14) − − (3,975,337) − − (3,132,624) 86,762,886 60,175,027 146,937,913 74,253,693 51,949,102 126,202,795 Unearned discounts (Note 9) − − (589,681) − − (1,645,097) Allowances for impairment P=85,702,413 P=58,390,843 P=139,528,238 P=73,083,715 P=50,125,319 P=118,431,313 and credit losses on loans Financial Liabilities and receivable (Note 14) − − (4,002,355) − − (3,154,065) Deposit liabilities P=99,686,240 P=9,045,448 P=108,731,688 P=82,555,551 P=5,963,071 P=88,518,622 Unearned discounts (Note 9) − − (636,865) − − (1,645,390) Bills and acceptances payable P=86,762,886 P=60,175,027 P=142,298,693 P=74,253,693 P=51,949,102 P=121,403,340 (Note 16) 3,288,940 − 3,288,940 5,571,387 − 5,571,387 Financial Liabilities Cashiers’ checks and demand Deposit liabilities 102,121,470 9,054,625 111,176,095 P=85,588,336 P=5,620,469 P=91,208,805 drafts payable 866,457 − 866,457 714,398 − 714,398 Bills and acceptances payable Subordinated debt (Note 18) − 2,750,000 2,750,000 − 2,750,000 2,750,000 (Note 16) 3,288,935 − 3,288,935 5,571,387 − 5,571,387 Accrued interest, taxes and Cashiers’ checks and demand other expenses (Note 17) 961,400 − 961,400 726,052 − 726,052 drafts payable 866,457 − 866,457 714,398 − 714,398 Other liabilities (Note 19) 1,093,516 964,037 2,057,553 726,462 196,911 923,373 Subordinated debt (Note 18) 2,862,500 2,862,500 − 2,863,751 2,863,751 105,896,553 12,759,485 118,656,038 90,293,850 8,909,982 99,203,832 Accrued interest, taxes and Nonfinancial liabilities other expenses (Note 17) 982,024 − 982,024 925,153 − 925,153 Income tax payable 52,208 − 52,208 2 7,7 6 6 − 2 7,7 6 6 Other liabilities (Note 19) 1,093,516 257,154 1,350,670 726,462 196,911 923,373 Accrued interest, taxes and 108,352,402 12,174,279 120,526,681 93,525,736 8,681,131 102,206,867 other expenses (Note 17) 50,211 − 50,211 45,530 8,929 54,459 Nonfinancial liabilities Other liabilities (Note 19) 1,416,087 − 1,416,087 1,395,735 409,518 1,805,253 Income tax payable 76,935 − 76,935 28,113 − 28,113 1,518,506 − 1,518,506 1,469,031 418,447 1,887,478 Accrued interest, taxes and P=107,415,059 P=12,759,485 P=120,174,544 P=91,762,881 P=9,328,429 P=101,091,310 other expenses (Note 17) 56,151 − 56,151 3,867 27,043 30,910 Other liabilities (Note 19) 1,416,087 830,620 2,246,707 1,395,735 420,835 1,816,570 1,549,173 830,620 2,379,793 1,427,715 44 7, 8 7 8 1,875,593 P=109,901,575 P=13,004,899 P=122,906,474 P=94,953,451 P=9,129,009 P=104,082,460 21. Equity

Capital Management The Parent Company actively manages its capital to comply with regulatory requirements. The primary objective of the Parent Company’s capital management is to ensure that it maintains adequate capital to cover risks inherent to its banking activities without prejudice to optimizing shareholder’s value. The Parent Company adopts the capital adequacy requirements of the New Capital Accord or Basel II, as contained in the implementation guidelines of BSP Circular No. 538, which took effect in July 2007. Under this rule, risk weight ratings shall be based on external rating agencies and total risk weighted assets shall be computed based on credit, market and operational risks.

138 2013 ANNUAL REPORT They’ve Got Something to Talk About 139 Regulatory Qualifying Capital The risk-weighted CAR is calculated by dividing the sum of its Tier 1 and Tier 2 capital, as defined under BSP regulations, Under existing BSP regulations, the determination of the Parent Company’s compliance with regulatory requirements and by its risk-weighted assets. The risk-weighted assets, as defined by the BSP regulations, consist of all of the assets on ratios is based on the amount of the Parent Company’s ‘unimpaired capital’ (regulatory net worth) reported to the BSP, the balance sheet at their respective book values, together with certain other off-balance sheet items, weighted by certain which is determined on the basis of regulatory policies. In addition, the risk-based Capital Adequacy Ratio (CAR) of a percentages depending on the risks associated with the type of assets. The determination of compliance with regulatory bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be less than 10.00% for both requirements and ratios is based on the amount of the Parent Company’s ‘unimpaired capital’ (regulatory net worth) as solo basis (head office and branches) and consolidated basis (Parent Company and subsidiaries engaged in financial allied reported to the BSP, which is determined on the basis of regulatory accounting practices which differ from PFRS in some undertakings). Qualifying capital and risk-weighted assets are computed based on BSP regulations. respects.

The regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1 (core) and Tier 2 (supplementary) capital. In 2013 and 2012, the Parent Company has complied with the required 10.00% capital adequacy ratio of the BSP. Tier 1 capital comprises share capital, retained earnings (including current year profit) and non-controlling interest less required deductions such as deferred income tax and unsecured credit accommodations to DOSRI. Tier 2 capital includes The capital-to-risk assets ratio reported to the BSP as of December 31, 2013 and 2012 are shown in the table below unsecured subordinated debts, revaluation reserves and general loan loss provision. Certain items are deducted from the (amounts in millions): regulatory Gross Qualifying Capital, such as but not limited to equity investments in unconsolidated subsidiary banks and other financial allied undertakings, but excluding investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis) and equity investments in subsidiary and non-financial allied undertakings. Consolidated 2013 2012 Risk-weighted assets are determined by assigning defined risk weights to the statement of financial position exposure Actual Required Actual Required and to the credit equivalent amounts of off-balance sheet exposures. Certain items are deducted from risk-weighted Tier 1 capital P= 1 9 , 1 2 8 P=16,836 assets, such as the excess of general loan loss provision over the amount permitted to be included in Tier 2 capital. The Tier 2 capital 3,896 3,489 risk weights vary from 0.00% to 150.00% depending on the type of exposure, with the risk weights of off-balance sheet Gross qualifying capital 23,024 20,325 exposures being subjected further to credit conversion factors. Below is a summary of risk weights and selected exposure Less required deductions 2,463 2,389 types: Total qualifying capital P=20,561 P=17,936 Risk weighted assets P= 1 2 0 , 7 2 5 P=103,361 Risk weight Exposure/Asset type* Tier 1 capital ratio 13.80% 13.98% Total capital ratio 0.00% Cash on hand; claims collateralized by securities issued by the national 1 7. 0 3 % 10% 1 7.3 5 % 10% government, BSP; loans covered by the Trade and Investment Development Corporation of the Philippines; real estate mortgages covered by the Home Guarantee Corporation Parent Company 2013 2012 20.00% COCI, claims guaranteed by Philippine incorporated banks/quasi-banks with Actual Required Actual Required the highest credit quality; claims guaranteed by foreign incorporated banks Tier 1 capital P= 1 9 , 1 3 0 P=16,937 with the highest credit quality; loans to exporters to the extent guaranteed Tier 2 capital 3,739 3,353 by Small Business Guarantee and Finance Corporation Gross qualifying capital 22,869 20,290 Less required deductions 50.00% Housing loans fully secured by first mortgage on residential property; Local 3,789 2,178 Total qualifying capital Government Unit (LGU) bonds which are covered by Deed of Assignment P=19,080 P= 1 8 , 1 1 2 Risk weighted assets of Internal Revenue allotment of the LGU and guaranteed by the LGU P=116,029 P=99,914 Guarantee Corporation Tier 1 capital ratio 13.83% 14.77% Total capital ratio 16.45% 10% 18.13% 10% 75.00% Direct loans of defined Small Medium Enterprise (SME) and microfinance loans portfolio; non-performing housing loans fully secured by first mortgage Presented below are the composition of qualifying capital and the related deductions as reported to the BSP (amounts in 100.00% All other assets (e.g., real estate assets) excluding those deducted from millions): capital (e.g., deferred income tax)

150.00% All non-performing loans (except non-performing housing loans fully Consolidated Parent Company secured by first mortgage) and all non-performing debt securities 2013 2012 2013 2012 * Not all inclusive Tier 1 capital Paid up common stock P=11,284 P=11,284 P=11,284 P=11,284 Additional paid-in capital 979 979 979 979 With respect to off-balance sheet exposures, the exposure amount is multiplied by a credit conversion factor (CCF), Retained earnings 4,804 2,749 4,910 2,888 ranging from 0.00% to 100.00%, to arrive at the credit equivalent amount, before the risk weight factor is multiplied to Undivided profits 2,050 1,827 1,952 1,803 arrive at the risk-weighted exposure. Direct credit substitutes (e.g., guarantees) have a CCF of 100.00%, while items not Cumulative foreign currency involving credit risk has a CCF of 0.00%. translation 5 (17) 5 (17) Minority interest 6 14 – – In the case of derivatives, the credit equivalent amount (against which the risk weight factor is multiplied to arrive at the Core Tier 1 capital 19,128 16,836 19,130 16,937 risk-weighted exposure) is generally the sum of the current credit exposure or replacement cost (the positive fair value or zero if the fair value is negative or zero) and an estimate of the potential future credit exposure or add-on. The add-on (Forward) ranges from 0.00% to 1.50% (interest rate-related) and from 1.00% to 7.50% (exchange rate-related), depending on the residual maturity of the contract. For credit-linked notes and similar instruments, the risk-weighted exposure is the higher of the exposure based on the risk weight of the issuer’s collateral or the reference entity or entities.

140 2013 ANNUAL REPORT They’ve Got Something to Talk About 141 Consolidated Parent Company Capital Stock 2013 2012 2013 2012 Capital stock consist of: Deductions from Tier 1 capital 2013 2012 2011 Total outstanding unsecured credit Common stock - P=10.00 par value accommodation to a DOSRI P= 1 6 0 P= 3 1 5 P= 2 8 8 P= 3 1 5 Authorized - 1,500,000,000 shares in 2013 and 2012 Deferred income tax 986 965 1,173 1,150 Issued and outstanding - 1,128,409,610 shares Goodwill 1,317 1,109 919 713 in 2013 and 2012 and 387,352,810 in 2011 P=11,284,096 P=11,284,096 P=3,873,528 Total Deductions 2,463 2,389 2,380 2,178 Preferred stock - P=10.00 par value convertible, Total Tier 1 Capital 16,665 14,447 16,750 14,759 nonvoting shares Tier 2 capital Authorized - 500,000,000 shares in 2013 and 2012 General loan loss provision 1,033 626 989 603 and 300,000,000 shares in 2011 Unsecured subordinated debt 2,863 2,863 2,750 2,750 Issued and outstanding - none in 2013 and 2012, Total Tier 2 capital 3,896 3,489 3,739 3,353 and 300,000,000 in 2011 − − 3,000,000 Deductions from Tier 1 and Tier 2 P=11,284,096 P=11,284,096 P=6,873,528 capital – – 1,409 – Qualifying capital On January 19, 2012 and February 10, 2012, the Parent Company received cash from its shareholders totaling P=3.00 billion Net Tier 1 capital 14,447 16,665 16,046 14,759 as deposits for future stock subscription for 300 million common shares which were subsequently issued in March 2012. Net Tier 2 capital 3,489 3,896 3,034 3,353 Also in the same period, the preferred shareholders converted a total of 300 million preferred shares amounting to P=3.00 Total qualifying capital 17,936 20,561 19,080 18,112 billion to 300 million common shares. Capital requirements Credit risk 10,325 8,485 9,919 8,215 With the approvals by the PSE of the Parent Company’s application for listing and by the SEC for the Registration Statement Market risk 214 553 214 553 both on March 14, 2012, a total of 245,316,200 common shares, with P=10.00 par value per share, representing 21.70% Operational risk 1,534 1,297 1,470 1,223 of outstanding capital stock, were offered and subscribed through an initial public offering at P=18.50 per share on April Total capital requirements P=12,073 P=10,335 P=11,603 P= 9 , 9 9 1 20 to 26, 2012. The common shares comprise of (a) 141,056,800 new shares issued by the Parent Company by way of a primary offer, and (b) 104,259,400 existing shares offered by FDC, the selling shareholder, pursuant to a secondary offer. Subsequently, on September 5, 2012, 36,715,300 shares under the over-allotment option were exercised at a price The policies and processes guiding the determination of the sufficiency of capital of the Parent Company have been of P=18.50 per share that brought the subscriptions to 25.00% of the outstanding capital stock. The Parent Company’s incorporated in the Parent Company’s Internal Capital Adequacy Assessment Process (ICAAP) which supplements the BSP’s common shares were listed and commenced trading in the PSE on May 7, 2012. As of December 31, 2013 and 2012, 58 risk-based capital adequacy framework under BSP Circular Nos. 538 and 639 to comply with the requirements of the BSP. and 32 shareholders owned at least 100 shares of stock, respectively. While the Parent Company has added the ICAAP to its capital management policies and processes, there were no changes made on the objectives and policies for the years ended December 31, 2013 and 2012. The total proceeds raised by the Parent Company from the sale of primary offer shares amounted to P=2.61 billion while the net proceeds (after deduction of direct costs related to equity issuance) amounted to P=2.39 billion. On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on Minimum Capital Requirements, which provides the implementing guidelines on the revised risk-based capital adequacy framework particularly Dividends on the minimum capital and disclosure requirements for universal banks and commercial banks, as well as their subsidiary The following cash dividends were paid by the Parent Company in 2012 and 2011: banks and quasi-banks, in accordance with the Basel III standards. The circular is effective on January 1, 2014.

2012 The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1 capital ratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital. The BSP’s existing requirement for Total CAR remains Date of BSP unchanged at 10% and these ratios shall be maintained at all times. Class Date of declaration Date of record approval Date of payment Per share Total amount Preferred November 24, 2011 November 24, 2011 January 10, 2012 January 18, 2012 P=0.225 P=67,500,000 Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility criteria for capital Common December 15, 2011 November 30, 2011 January 30, 2012 February 10, 2012 2.582 1,000,000,000 instruments under the revised capital framework shall no longer be recognized as capital upon the effectivity of Basel III. P=1,067,500,000 Capital instruments issued under BSP Circular Nos. 709 and 716 (the circulars amending the definition of qualifying capital particularly on Hybrid Tier 1 and Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781, shall be recognized as qualifying capital until December 31, 2015. In addition to changes in minimum capital 2011 requirements, this Circular also requires various regulatory adjustments in the calculation of qualifying capital. Date of BSP Class Date of declaration Date of record approval Date of payment Per share Total amount The Parent Company has taken into consideration the impact of the foregoing requirements to ensure that the appropriate Preferred August 27, 2010 August 27, 2010 February 14, 2011 February 16, 2011 P=0.225 P=67,500,000 level and quality of capital are maintained on an ongoing basis. Preferred November 25, 2010 November 25, 2010 February 14, 2011 February 16, 2011 0.225 67,500,000 Preferred February 24, 2011 February 24, 2011 April 27, 2011 May 2, 2011 0.225 67,500,000 Preferred May 26, 2011 May 26, 2011 July 22, 2011 July 25, 2011 0.225 67,500,000 Preferred August 25, 2011 August 25, 2011 October 3, 2011 October 4, 2011 0.225 67,500,000 P=337,500,000

For the years ended December 31, 2013 and 2012, no cash dividends were declared.

142 2013 ANNUAL REPORT They’ve Got Something to Talk About 143 22. Income and Expenses 23. Income and Other Taxes

Service charges, fees and commissions consist of: Under Philippine tax laws, the RBU of the Parent Company and its subsidiaries are subject to percentage and other taxes (presented as Taxes and licenses in the statements of income) as well as income taxes. Percentage and other taxes paid Consolidated Parent Company consist principally of gross receipts tax and documentary stamp taxes. Income taxes include corporate income tax, as 2013 2012 2011 2013 2012 2011 discussed below, and final taxes paid which represents final withholding tax on gross interest income from government securities and other deposit substitutes and income from FCDU transactions. These income taxes, as well as the deferred Service charges P=1,424,416 P=1,084,687 P=988,308 P=1,402,264 P=1,083,567 P=988,308 tax benefits and provisions, are presented as Provision for (benefit from) income tax in the statements of income. Fees and commissions 1,104,054 775,536 548,466 802,603 653,587 520,874 P=2,528,470 P=1,860,223 P=1,536,774 P=2,204,867 P=1,737,154 P=1,509,182 Republic Act (RA) No. 9397, An Act Amending National Internal Revenue Code, provides that the Regular Corporate Income Tax (RCIT) rate shall be 30.00% and the interest expense allowed as a deductible expense shall be reduced by 33.00% of Service charges include loan processing fees, late payment charges and service charges on deposit taking-related interest income subjected to final tax. transactions. An MCIT of 2.00% of modified gross income is computed and compared with the RCIT. Any excess of MCIT over the RCIT Fees and commissions include credit card membership fees, interchange fees, merchant discounts and other commissions. is deferred and can be used as a tax credit against future income tax liability for the next three years. In addition, NOLCO is allowed as a deduction from taxable income in the next three years from the period of incurrence. Miscellaneous income consists of: Consolidated Parent Company FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income (income from residents) is generally subject to 10.00% gross income tax. In addition, interest income on deposit placements with other FCDUs 2013 2012 2011 2013 2012 2011 and offshore banking units is subject to a 7.50% final tax. RA No. 9294, which became effective in May 2004, provides Recovery on charged-off that the income derived by the FCDU from foreign currency transactions with non-residents, Offshore Banking Units P=180,821 P=111,382 assets P=299,399 P=183,537 P=111,382 P= 2 9 7 , 7 8 1 (OBUs), local commercial banks including branches of foreign banks is tax-exempt while interest income on foreign currency 3,823 2,841 Rental income 3,333 3,823 2,841 3,333 loans from residents other than OBUs or other depository banks under the expanded system is subject to 10.00% income 975 1,047 Dividend income 76,946 975 1,047 76,946 tax. Others 27,249 83,902 50,778 22,972 42,499 31,143

P=406,927 P=272,237 P=166,048 P=401,032 P= 2 2 8 , 1 1 8 P=146,413 In 2011, the BIR issued Revenue Regulation 14-2011, which prescribes the proper allocation of costs and expenses among the income earnings of financial institutions for income tax reporting. Only costs and expenses attributable to the Others include referral income earned on insurance premiums charged through credit cards. operations of the RBU can be claimed as deduction to arrive at the taxable income of the RBU subject to the RCIT. All costs and expenses pertaining to the FCDU/EFCDU are excluded from the RBU’s taxable income. Within the RBU, Miscellaneous expenses consist of: common costs and expenses should be allocated among taxable income, tax-paid income and tax-exempt income using the specific identification or the allocation method. Consolidated Parent Company 2013 2012 2011 2013 2012 2011 Provision for income tax consists of: Consolidated Parent Company Service charges, fees and commissions P=494,454 P= 3 6 3 , 7 2 2 P=258,217 P=485,648 P=363,630 P=257,967 2013 2012 2011 2013 2012 2011 Advertising 395,164 420,141 320,898 394,513 419,628 320,572 Current: Security, messengerial and Regular corporate income tax P= 1 7 1 , 9 9 3 P=84,873 P= − P=146,917 P=84,873 P= − janitorial services 362,303 271,631 188,428 340,782 253,743 188,178 Minimum corporate income tax − 2,350 68,445 − − 68,383 Postage, telephone, cables Final tax 68,809 120,369 154,481 66,946 120,151 153,779 and telegram 282,808 156,915 118,049 274,372 146,840 116,044 240,802 2 0 7, 5 9 2 222,926 213,863 205,024 222,162 Brokerage fees 239,503 161,194 135,327 239,503 161,194 135,278 Deferred (22,146) (31,590) 156,572 (30,324) (17,009) 156,572 Insurance 211,207 185,419 156,190 1 9 7, 3 5 7 176,655 156,123 P=218,656 P=176,002 P=379,498 P=183,539 P=188,015 P=378,734 Transportation and travel 189,705 151,334 111,444 156,789 141,237 108,979 Technological fees 179,279 143,240 106,446 178,866 143,201 106,239 The components of the Group’s and the Parent Company’s net deferred tax assets as of December 31, 2013 and 2012 follow: Power, light and water 165,633 122,391 78,572 155,079 110,939 76,166 Stationery and Supplies 74,742 95,945 62,422 68,156 89,401 62,435 Consolidated Parent Company Management and other 2013 2012 2013 2012 professional fees 57,000 52,289 31,594 53,818 4 7, 9 7 0 29,682 Entertainment, amusement Deferred tax asset on: and recreation 4 7, 9 7 0 45,781 28,900 43,838 39,310 28,770 Allowance for impairment and credit losses P=1,326,604 P=1,040,389 P=1,281,117 P=1,012,345 Repairs and maintenance 40,525 39,353 46,373 31,635 33,132 46,321 Accumulated depreciation of assets Litigation expenses 3 7,7 6 3 22,893 13,907 36,753 22,893 13,884 foreclosed or dacioned 80,892 71,681 76,914 69,655 Supervision fees 35,431 25,780 24,348 34,270 25,427 23,810 Accrued expenses 42,040 45,116 42,040 45,116 Others 137,845 324,883 119,479 1 2 7,1 6 0 298,000 1 15,728 Unamortized past service cost 5,958 7,023 5,958 7,023 Unrealized foreign exchange loss P=2,951,332 P=2,583,001 P=1,800,594 P=2,818,539 P=2,473,200 P=1,786,086 − 117,340 − 1 1 7, 3 4 0 Net retirement obligation 4,240 8,113 359 2,679 Unrealized trading loss 46 − 46 − Others include payments for subscriptions, membership fees, trainings, donations and contributions, delivery and freight MCIT − 2,350 − − expenses, fines, penalties, other charges and clearing fees. NOLCO − 2,038 − − 1,459,780 1,294,050 1,406,434 1,254,158

(Forward)

144 2013 ANNUAL REPORT They’ve Got Something to Talk About 145 Consolidated Parent Company The reconciliation of statutory income tax at statutory tax rate to the effective income tax follows: 2013 2012 2013 2012 Consolidated Parent Company Deferred tax liability on: Branch licenses acquired from business 2013 2012 2011 2013 2012 2011 combination P=187,620 P= 1 8 7 , 6 2 0 P= − P= − Statutory income tax P=682,317 P= 5 9 7 , 7 1 5 P=633,001 P=652,359 P=610,069 P=634,271 Gain on asset foreclosure and dacion Additions to (reductions from) transactions 134,346 83,084 88,528 58,898 income taxes resulting from Unrealized foreign exchange gain 94,987 − 94,987 − the tax effects of: Excess of fair value over carrying value of net Nondeductible expenses 185,303 135,428 139,234 180,061 135,062 137,455 assets acquired from business combinations 46,577 49,084 46,577 49,084 FCDU income (73,524) (186,543) (97,998) (73,524) (186,543) (97,998) Prepaid rent 1,125 1,125 − − Non taxable and tax- 464,655 320,913 230,092 107,982 exempt income (639,005) (255,598) (204,984) (516,165) (237,827) (204,984) P= 9 9 5 , 1 2 5 P=973,137 P=1,176,342 P=1,146,176 Interest income subjected to final tax net of tax paid (62,767) (132,771) (89,755) (59,192) (132,746) (90,010) Change in unrecognized deferred tax assets 126,332 17,771 − − − − As of December 31, 2013 and 2012, the Group and the Parent Company did not recognize deferred tax assets on the Effective income tax P=218,656 P=176,002 P=379,498 P=183,539 P=188,015 P=378,734 following temporary differences:

2013 2012 Allowance for credit and impairment losses P=394,890 P=686,379 NOLCO 8,134 126,396 24. Retirement Plan Excess of MCIT over RCIT – 3,264 Accrued Expenses – 474 The existing regulatory framework, RA No. 7641, the Retirement Pay Law requires companies with at least ten (10) P=403,024 P=816,513 employees to pay retirement benefits to qualified private sector employees in the absence of any retirement plan in the entity, provided however that the employee’s retirement benefits under any collective bargaining and other agreements shall not be less than those provided under the law. The law does not require minimum funding of the plan. The Group believes that it is not reasonably probable that the tax benefits of these temporary differences will be realized in the future. Parent Company The Parent Company has a funded, noncontributory defined benefit retirement plan (the Plan) covering substantially all of Provision for deferred income tax charged directly to OCI during the year for the Group and the Parent Company follows: its officers and regular employees. Under the Plan, all covered officers and employees are entitled to cash benefits (equivalent to 125.00% of the final monthly salary for every year of service depending on the tenure of the employee) after 2013 2012 satisfying certain age and service requirements. The Parent Company’s retirement plan is in the form of a trust administered by the Parent Company’s Trust Division under the supervision of the Retirement Committee. Remeasurements on retirement plan P= 1 5 8 (P=13,389) GBI GBI has a funded, noncontributory defined benefit plan covering substantially all of its officers and regular employees. The The movements in NOLCO and MCIT follows: benefits are based on years of service and final compensation. The retirement plan provides retirement benefits equal to 100.00% of the final monthly salary for every year of service. The retirement plan is in the form of a trust administered Consolidated Parent Company by the Parent Company’s Trust Division. 2013 2012 2013 2012 NOLCO As of December 31, 2013, the Bank only has four remaining employees. As a result of GBI’s transfer of its assets and At beginning of year P=133,189 P= 1 8 0 , 1 7 2 P= − P=60,667 liabilities to EWRB (see Note 1), the employment of GBI’s employees had been terminated. These employees were hired Addition − 15,351 − − by EWRB after their termination from GBI. The total amount of retirement benefits paid by GBI to its employees Used (125,055) (62,334) − (60,667) amounted to P= 42.27 million. Loss on settlement of the retirement plan amounting to P= 24.65 million was recognized and At end of year P= 8 , 1 3 4 P=133,189 P= − P= − included in Compensation and fringe benefits expense in the consolidated statement of income. As of December 31, 2013, there were no retirement benefits accruing to the remaining employees of GBI. MCIT At beginning of year P=5,614 P= − P=68,383 P=71,718 EWRB Addition – 2,279 − − In 2013, EWRB provided a noncontributory defined benefit plan covering substantially all of its officers and regular Used (5,614) (68,383) − (68,383) employees. The benefits are based on years of service and final compensation. The retirement plan provides retirement At end of year P= − P=5,614 P= − P= − benefits equal to 100.00% of the final monthly salary for every year of service. As of December 31, 2013, the retirement plan of EWRB is unfunded. Prior to 2013, EWRB provides accrual for retirement benefits of its employees based on the requirements of RA No. 7641.

146 2013 ANNUAL REPORT They’ve Got Something to Talk About 147 The net retirement obligation included in ‘Accrued taxes, interest and other expenses’ in the statements of financial The Group’s plan assets are carried at fair value. All equity and debt instruments held have quoted prices in active market. position are as follows: The fair value of other assets and liabilities, which include deposits in banks, accrued interest and other receivables and trust fee payables, approximate carrying amount due to the short-term nature of these accounts. Consolidated Parent Company 2013 2012 2013 2012 The plan assets are diversified investments and are not exposed to concentration risk. Present value of the defined benefit obligation P= 4 3 2 , 9 4 8 P=342,590 P=432,782 P=322,467 Each year, an Asset-Liability Matching Study (ALMS) is performed with the result being analyzed in terms of risk-and-return Fair value of plan assets 431,584 315,547 431,584 313,538 profiles. The Group’s current strategic investment strategy consists of 70.00% of debt instruments, 25.00% of equity Net retirement obligation P=1,364 P=27,043 P= 1 , 1 9 8 P= 8 , 9 2 9 instruments, and 5.00% cash.

Changes in the present value of the defined benefit obligation as of December 31, 2013 and 2012 recognized in the The Group expects to contribute P=88.70 million to the plans in 2014. statements of financial position follow: The cost of defined benefit retirement plans as well as the present value of the benefit obligation are determined using Consolidated Parent Company actuarial valuations. The actuarial valuation involves making various assumptions. The principal assumptions used are 2013 2012 2013 2012 shown below: Balance at beginning of year P=342,590 P=255,252 P=322,467 P=237,235 Current service cost 76,300 50,762 74,391 49,986 Parent Company EWRB GBI Interest cost 20,439 17,633 19,670 16,132 2013 2012 2013 2012 Loss on settlement 24,647 − − − Discount rate Remeasurement (gains) losses: At January 1 6.10% 6.80% 5.99% 8.33 % Actuarial (gains) and losses arising from At December 31 4.20% 6.10% 5.13% 8.33 % changes in demographic assumptions (185,747) 3,977 (185,747) 3,977 Future salary increase rate 5.00% 5.00% 5.00% 1.00% Actuarial losses arising from changes in Average remaining working life 19 14 24 13 financial assumptions 150,447 38,953 150,447 38,953 Actuarial losses arising from devistions of experience from assumptions 75,822 − 75,822 − Benefits paid (71,550) (23,987) (24,268) (15,492) The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on Balance at end of year P= 4 3 2 , 9 4 8 P=342,590 P=432,782 P=322,467 the defined benefit obligation as of December 31, 2013, assuming all other assumptions were held constant.

Increase in defined Changes in the fair value of plan assets are as follows: benefit obligation Consolidated Parent Company Consolidated Parent Company Decrease in discount rate of 1% P=50,250 P=50,215 2013 2012 2013 2012 Increase in salary rate increase of 1% 49,371 49,336 Balance at beginning of year P=315,547 P=279,562 P=313,538 P=278,285 Improvement in employee turnover by 10% 20,988 20,960 Contributions 82,438 42,646 82,138 41,846 Interest income 19,228 19,026 19,126 18,923 Remeasurements 41,050 (1,700) 41,050 (10,024) In 2012, the Group only performed sensitivity analysis for the decrease in the discount rate as the decrease in the discount Benefits paid (26,679) (23,987) (24,268) (15,492) rate will increase the amount of the defined benefit obligation. Management assessed that as of December 31, 2012, it is Balance at end of year P=431,584 P=315,547 P=431,584 P=313,538 only the decline in discount rate that could significantly affect the retirement obligation. The sensitivity analysis has been determined based on reasonably possible change in the discount rate occurring as of December 31, 2012, assuming all other assumptions were held constant. If the discount rate would decrease by 50 basis points, the defined benefit obligation Changes in the fair value of plan assets are as follows: would increase by P=40.89 million for the Group and P=24.67 million for the Parent Company. Consolidated Parent Company The amounts included in Compensation and fringe benefits expense in the statements of income are as follows: 2013 2012 2013 2012 Cash and cash equivalents P=275,907 P=72,048 P=275,907 P=70,039 Debt instruments Consolidated Parent Company Government securities 54,502 153,426 54,502 153,426 2013 2012 2011 2013 2012 2011 Private securities 30,330 25,432 30,330 25,432 Equity instruments Current service cost P=76,300 P=50,762 P=31,802 P= 7 4 , 3 9 1 P= 4 9 , 9 8 6 P=31,563 Loss on settlement 24,647 − − − − − Holding 23,801 16,895 23,801 16,895 Net interest expense (income) 1,211 (1,393) (1,534) 544 (2,791) (1,652) Financial services 12,684 12,476 12,684 12,476 Expense recognized P=102,158 P=49,369 P=30,268 P= 7 4 , 9 3 5 P=47,195 P= 2 9 , 9 1 1 Telecommunications 8,319 7,1 7 6 8,319 7,1 7 6 Real estate 7,273 16,189 7,273 16,189 Utilities 4,970 3,149 4,970 3,149 Services 4,343 4,396 4,343 4,396 Manufacturing 3,358 3,311 3,358 3,311 Retail 3,032 − 3,032 − Mining 2,008 982 2,008 982 Transportation 234 − 234 − Others 823 67 823 67 Fair value of plan assets P=431,584 P=315,547 P=431,584 P=313,538 148 2013 ANNUAL REPORT They’ve Got Something to Talk About 149 2013 25. Leases Amount/ Outstanding Category Volume Balance Terms and Conditions/Nature The Group leases several premises occupied by its head office and branches. Some leases are subject to annual escalation of 5.00% to 10.00% and for periods ranging from 5 to 15 years, renewable upon mutual agreement of both parties. For the Key management personnel: years ended December 31, 2013, 2012 and 2011, the total rentals of the Group charged to operations amounted to P= 542.47 Loans receivable P= − 29,528 Loans granted with terms ranging from five to million, P= 410.18 million and P= 291.05 million, respectively. For the years ended December 31, 2013, 2012 and 2011, total fifteen years, interest ranging from 5.59% rentals charged to operations by the Parent Company amounted to P= 518.23 million, P= 386.66 million and P= 282.62 million, to 10.20%, unsecured, no impairment respectively. Deposit liabilities − 194,467 Deposit liabilities with interest ranging from 0.00% to 5.88% Future minimum annual rentals payable under the aforementioned lease agreements follow: Accrued interest receivable − 257 Interest income accrued on outstanding loans receivable Interest income 2,567 − Interest income on loans receivable Consolidated Parent Company Interest expense 702 − Interest expense on deposit liabilities 2013 2012 2013 2012 Other related parties: 729,431 Loans granted with terms ranging from Within one year P=441,672 P=296,914 P=424,498 P=281,762 Loans receivable 900 three months to five years, interest ranging After one year but not more than five years 1,783,259 1,133,633 1,742,601 1,108,746 from 4.00% to 4.50%, secured by real More than five years 2,304,121 1,128,635 2,220,774 1,126,800 estate and chattel mortgage, no P=4,529,052 P=2,559,182 P=4,387,873 P=2,517,308 impairment Receivables purchased 266,777 1,305,636 Receivables purchased by the Parent Company from FLI Deposit liabilities − 2,782,334 Deposit liabilities with interest ranging from 0.00% to 5.88% 26. Related Party Transactions Accrued interest receivable − 390 Interest income accrued on outstanding loans receivable Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise Guarantees and commitments − 20,271,800 Unused credit lines significant influence over the other party in making financial and operating decisions. The Group’s related parties include: Accounts receivables − 746 Noninterest-bearing advances, payable on demand, no impairment • key management personnel, close family members of key management personnel, and entities which are controlled, Interest income 26,654 – Interest income on loans receivable significantly influenced by or for which significant voting power is held by key management personnel or their close I nterest expense 8,765 – Interest expense on deposit liabilities family members, Service fee expense 2,582 – Service fees paid to FLI for account servicing • subsidiaries, joint ventures and associates and their respective subsidiaries, and equivalent to 1.12% of loan amounts • post-employment benefit plans for the benefit of the Group’s employees. collected by FLI on behalf of the Parent Company (see Note 9) The Group has several business relationships with related parties. Transactions with such parties are made in the ordinary Rent expense 41,033 – Rent expenses paid for lease transactions course of business and on substantially same terms, including interest and collateral, as those prevailing at the time for with other related parties such as Filinvest comparable transactions with other parties. These transactions also did not involve more than the normal risk of Asia Corporation, Filinvest Alabang, Inc. collectability or present other unfavorable conditions. and FLI

The amounts and the balances arising from the foregoing significant related party transactions of the Group and of the Parent Company are as follows: 2012 Amount/ Outstanding 2013 Category Volume Balance Terms and Conditions/Nature Amount/ Outstanding Significant investors: Category Volume Balance Terms and Conditions/Nature Loans receivable P= − P=958,055 Loans granted with terms of one year, interest Significant investors: ranging from 2.38% to 4.50%, secured by Loans receivable P=5,621,850 P=5,621,850 Loans granted with a term of one year, interest real estate and chattel mortgage, no of 4.50%, unsecured, no impairment impairment Deposit liabilities − 5,019,354 Deposit liabilities with interest ranging from Deposit liabilities – 600,808 Deposit liabilities with interest ranging from 0.00% to 1.00% 1.24% to 3.50% Accrued interest receivable − 33,599 Interest income accrued on outstanding loans Accrued interest receivable – 8,655 Interest income accrued on outstanding loans receivable receivable Accrued expenses − 7,427 Payable for management and professional fees Accrued expenses – 5,558 Payable for management and professional fees paid by FDC (reimbursement for expenses) paid by FDC (reimbursement for expenses) Guarantees and commitments − 3,878,150 Unused credit lines Guarantees and commitments – 4,284,055 Unused credit lines Interest income 57,476 − Interest income on loans receivable Derivative assets – 28,102 Fair value of the foreign exchange forward Interest expense 700 − Interest expense on deposit liabilities contracts with FDC Interest income 28,566 – Interest income on loans receivable (Forward) Interest expense 8,418 – Interest expense on deposit liabilities Foreign exchange gain 23,731 – Foreign exchange gain on the foreign exchange forward contracts with FDC

(Forward)

150 2013 ANNUAL REPORT They’ve Got Something to Talk About 151 2012 Parent Company Related Party Transactions Amount/ Outstanding Transactions between the Parent Company and its subsidiaries meet the definition of related party transactions. Details Category Volume Balance Terms and Conditions/Nature of the Parent Company’s subsidiaries are disclosed in Note 1. Key management personnel: In addition to the transactions discussed above, the following are the transactions between the Parent Company and its Loans receivable P= – 26,277 Loans granted with terms ranging from five to subsidiaries that are recognized in the Parent Company’s statements of financial position and statements of income and fifteen years, interest ranging from 7.00% eliminated in the consolidated financial statements: to 10.20%, unsecured, no impairment Deposit liabilities – 515,923 Deposit liabilities with interest ranging from 1.24% to 3.50% 2013 Interest income 2,755 – Interest income on loans receivable Amount/ Outstanding Interest expense 325 – Interest expense on deposit liabilities Category Volume Balance Terms and Conditions/Nature Other related parties: Subsidiaries: Loans receivable – 501,581 Loans granted with terms ranging from Loans receivable P=1,007 P=128,200 Loans granted with a term of one month or three months to five years, interest ranging 30 days, interest rate of 4.00%, from 4.50% to 11.52%, secured by real unsecured, no impairment estate and chattel mortgage, no Receivables purchased 2,908,212 2,486,170 Receivables purchased by the Parent Company impairment from EWRB Receivables purchased 1,836,807 1,664,331 Receivables purchased by the Parent Company Guarantees and commitments − 3,371,800 Unused credit lines. from FLI Deposit liabilities − 148,868 Deposit liabilities with interest rate of 0.00% Deposit liabilities – 1,228,756 Deposit liabilities with interest ranging from Interest income 1,369 − Interest income on outstanding loans receivable 1.24% to 3.50% Interest expense – − Interest expense on deposit liabilities. Accrued interest receivable – 389 Interest income accrued on outstanding loans Service fee expense 1,665 − Service fees paid to EWRB for account receivable servicing equivalent to 0.37% of loan Guarantees and commitments – 9,900,000 Unused credit lines amounts collected by EWRB in behalf of Accounts receivables – 9,050 Noninterest-bearing advances, payable on the Parent Company for the receivables demand, no impairment purchased (see Note 9) Interest income 581 – Interest income on loans receivable Interest expense 1,388 – Interest expense on deposit liabilities Service fee expense 1,635 – Service fees paid to FLI for account servicing 2012 equivalent to 1.12% of loan amounts Amount/ Outstanding collected by FLI on behalf of the Category Volume Balance Terms and Conditions/Nature Parent Company (see Note 9) Subsidiaries: Service charges, fees and 1,034 – Commissions received by the Parent Company Deposit liabilities P= – P= 3 5 3 , 9 6 0 Deposit liabilities with interest from 0.00% to commissions for its services as a selling agent of FLI’s 2.50%. bonds issued in 2012 Other receivables – 820,000 Additional investments in GBI and FRBI Rent expense 39,652 – Rent expenses paid for lease transactions with amounting to P=700.00 million and P=20.00 other related parties such as Filinvest Asia million, respectively, presented as deposits Corporation, Filinvest Alabang, Inc. and FLI for future stock subscription in the Gain on sale of assets 232 – Gain on sale of investment property to subsidiaries’ financial statements Filinvest Alabang, Inc (See Notes 1 and 9) Interest income 69,696 Interest income on outstanding loans receivable Interest expense 588 Interest expense on deposit liabilities The Group’s significant investors pertain to FDC, the immediate Parent Company of the Group, and FDC Forex Corporation (a company under common control of FDC).

Key management personnel are those persons having authority and responsibility for planning, directing and controlling Transactions with Retirement Plans the activities of the Group, directly or indirectly. The Group considers the members of the Management Committee to Under PFRS, certain post-employment benefit plans are considered as related parties. The Parent Company’s retirement constitute key management personnel for purposes of PAS 24. The Group provides banking services to its key plan is in the form of a trust administered by the Parent Company’s Trust Division under the supervision of the Retirement management personnel. Committee. The values of the assets of the fund are as follows:

Other related parties pertain to the Group’s affiliates (subsidiaries of FDC). 2013 2012

The Group and the Parent Company had no outright purchases and outright sale of debt securities with significant Cash and cash equivalents P=275,907 P=70,039 shareholders, key management personnel and other related parties in 2013 and 2012. Equity instruments 70,022 64,574 Debt instruments 84,832 178,858 No provision and allowance for loan losses was recognized by the Group for loans to significant investors, key management Others 823 67 personnel and other related parties. P=431,584 P=313,538

The Parent Company’s subsidiaries have no transactions with related parties outside of the Group. The transactions disclosed above are the same for the Group and the Parent Company.

152 2013 ANNUAL REPORT They’ve Got Something to Talk About 153 As of December 31, 2013 and 2012, cash and cash equivalents include the savings deposit with the Parent Company BSP Circular No. 560 provides that the total outstanding loans, other credit accommodation and guarantees to each of amounting to P=16.41 million and P=1.20 million, respectively and debt instruments include investments in the Parent the bank’s/quasi-bank’s subsidiaries and affiliates shall not exceed 10.00% of the net worth of the lending bank/quasi-bank, Company’s LTNCD amounting to P=62.24 million and P=46.15 million, respectively. Equity instruments include provided that the unsecured portion of which shall not exceed 5.00% of such net worth. Further, the total outstanding investments in the Parent Company’s equity securities amounting to P=0.73 million, equivalent to 30,000 common loans, credit accommodations and guarantees to all subsidiaries and affiliates shall not exceed 20.00% of the net worth of shares with fair market value of P=24.30 per share as of December 31, 2013, and P=0.87 million equivalent to 30,000 the lending bank/quasi-bank; and the subsidiaries and affiliates of the lending bank/quasi-bank are not related interest of common shares with fair market value of P=29.00 per share as of December 31, 2012. The Trust Division exercises the any director, officer and/or stockholder of the lending institution, except where such director, officer or stockholder sits in voting rights over the shares. the BOD or is appointed officer of such corporation as representative of the bank/quasi-bank. As of December 31, 2013 and 2012, the Parent Company is in compliance with these requirements. The following are the amounts recognized by the retirement plan arising from its transactions with the Parent Company for the years ended December 31, 2013, 2012 and 2011. On May 12, 2009, BSP issued Circular No. 654 allowing a separate individual limit of twenty-five (25.00%) of the net worth of the lending bank/quasi-bank to loans of banks/quasi-banks to their subsidiaries and affiliates engaged in energy 2013 2012 2011 and power generation. As of December 31, 2013 and 2012, the Parent Company is in compliance with these requirements. Trust fees P=2,095 P=1,265 P=1,351 Interest income on savings deposit 4,796 149 − Interest income on investments in LTNCD 2,669 45 − Gain on investments in equity shares 1,232 91 – 2 7. Trust Operations

Securities and other properties held by the Parent Company in fiduciary or agency capacity for clients and beneficiaries are not included in the accompanying statements of financial position since these are not assets of the Parent Company. Remunerations of Directors and other Key Management Personnel The combined trust and managed funds of the Trust Department of the Parent Company amounted to P= 7.80 billion and Total remunerations of key management personnel are as follows: P= 13.80 billion as of December 31, 2013 and 2012, respectively.

Consolidated Parent Company Government securities with total face value of P= 161.90 million and P= 181.80 million as of December 31, 2013 and 2012, 2013 2012 2011 2013 2012 2011 respectively, are deposited with the BSP in compliance with current banking regulations related to the Parent Company’s Short-term employee benefits P= 1 9 7 , 9 3 3 P=231,210 P=171,883 P= 1 8 7 , 5 3 5 P= 2 2 5 , 1 9 9 P=141,744 trust functions. These government securities are recorded as part of investment securities at amortized cost as of Post employment benefits 7, 44 8 4,320 7, 5 1 5 4,160 4,320 7, 5 1 5 December 31, 2013 and 2012. P=205,381 P=235,530 P=179,398 P=191,695 P=229,519 P=149,259 In accordance with BSP regulations, 10.00% of the profits realized by the Parent Company from its trust operations are appropriated to surplus reserves. The yearly appropriation is required until the surplus reserves for trust operations amounts to 20.00% of the Parent Company’s authorized capital stock. Remunerations given to directors which were approved by the Board Remuneration Committee amounted to P=10.16 million in 2013, P=7.30 million in 2012 and P=8.00 million in 2011 for the Group and the Parent Company. The Parent Company’s income from its trust operations amounted to P= 29.02 million, P= 27.84 million and P= 31.10 million in 2013, 2012 and 2011, respectively. Regulatory Reporting As required by BSP, the Group discloses loan transactions with investees and with certain directors, officers, stockholders and related interests (DOSRI). Existing banking regulations limit the amount of individual loans to DOSRI, 70.00% of which must be secured, to the total of their respective deposits and book value of their respective investments in the 28. Commitments and Contingent Liabilities lending company within the Group. In the aggregate, loans to DOSRI generally should not exceed total equity or 15.00% of total loan portfolio, whichever is lower. In the normal course of the Group’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. The Group does not anticipate material unreserved BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts. The following table shows losses as a result of these transactions. information relating to the loans, other credit accommodations and guarantees classified as DOSRI accounts under regulations existing prior to said Circular, and new DOSRI loans, other credit accommodations granted under said circular: The Group has several loan related suits and claims that remain unsettled. It is not practicable to estimate the potential financial impact of these contingencies. However, in the opinion of management, the suits and claims, if decided adversely, Consolidated Parent Company will not involve sums having a material effect on the Group’s financial statements. 2013 2012 2011 2013 2012 2011 Total outstanding DOSRI accounts P=6,394,361 P=1,596,916 P=1,102,394 P=6,394,361 P=1,596,916 P=2,102,394 The following is a summary of commitments and contingencies of the Parent Company at their peso-equivalent contractual Percent of DOSRI accounts amounts arising from off-balance sheet items: granted prior to effectivity of BSP Circular No. 423 to total loans 0.000% 0.001% 0.01% 0.000% 0.001% 0.01% 2013 2012 2011 Percent of DOSRI accounts granted Unused credit line - credit card P=26,932,813 P=22,108,158 P=15,549,780 after effectivity of BSP Circular Trust department accounts (Note 27) 7,819,270 13,803,205 8,857,411 No. 423 to total loans 6.494% 2.27% 1.88% 6.738% 2.27% 3.53% Treasurer/cashier/manager’s checks Percent of DOSRI accounts to total loans 6.495% 2.27% 1.89% 6.738% 2.27% 3.54% 4,867,487 5,258,228 − Percent of unsecured DOSRI accounts Unused commercial letters of credit 2,965,080 1,348,261 612,741 to total DOSRI accounts 2.499% 19.71% 29.11% 2.499% 19.71% 62.83% Forward exchange sold 2,308,540 7,150,910 15,119,147 Percent of past due DOSRI accounts to Spot exchange sold 1,711,332 1,429,038 9,325,935 total DOSRI accounts 0.067% 0.00% 0.00% 0.067% 0.00% 0.00% Outstanding guarantees 9 5 7,7 6 0 483,008 568,910 Inward bills for collection 930,110 68,507 88,054 Outward bills for collection 3 7,1 3 2 14,010 47,814 The amounts of loans disclosed for related parties above differ with the amounts disclosed for key management personnel Late deposits/payments received 12,581 20,202 3,620 since the composition of DOSRI is more expansive that that of key management personnel. Items held for safekeeping 676 555 455 Unsold traveler’s check 27 25 26 Others 27 20 21 154 2013 ANNUAL REPORT They’ve Got Something to Talk About 155 December 31, 2012 29. Financial Performance Effect of remaining rights of set-off (including rights to set off financial Earnings per share amounts were computed as follows: Net amount collateral) that do not meet PAS 32 offsetting criteria 2013 2012 2011 Gross amounts presented in Financial assets offset in statements of a. Net income attributable to equity holders of the recognized at Gross carrying accordance with financial Fair value of Parent Company P=2,055,570 P=1,817,409 P=1,730,965 end of reporting amounts (before the offsetting position Financial financial Net exposure b. Dividends declared on convertible preferred shares − − (270,000) period by type offsetting) criteria [a-b] instruments collateral [c-d] c. Net income attributable to common shareholders [a] [b] [c] [d] [e] 1,817,409 1,460,965 of the Parent Company 2,055,570 Derivative assets (Note 5) P=41,316 P= – P=41,316 P= – P= – P=41,316 d. Weighted average number of outstanding Total P=41,316 P= – P=41,316 P= – P= – P=41,316 common shares (Note 21) 1,128,410 981,391 3 8 7, 3 5 3 e. Weighted average number of convertible preferred shares(Note 22) − 50,000 300,000 f. Total weighted average number of outstanding Financial liabilities common and convertible preferred shares 1,128,410 1,031,391 6 8 7, 3 5 3 December 31, 2013 1.85 3.77 g. Basic EPS (c/d) 1.82 Effect of remaining rights of h. Diluted EPS (a/f) 1.82 1.76 2.52 set-off (including rights to set off Net amount financial collateral) that do not meet PAS 32 offsetting criteria The following basic ratios measure the financial performance of the Group and of the Parent Company: Gross amounts presented in Financial assets offset in statements of recognized at Gross carrying accordance with financial Fair value of Consolidated Parent Company end of reporting amounts (before the offsetting position Financial financial Net exposure period by type offsetting) criteria [a-b] instruments collateral [c-d] 2013 2012 2011 2013 2012 2011 [a] [b] [c] [d] [e] Return on average equity 11.11% 11.86% 1 7. 0 0 % 10.65% 12.04% 1 7.1 1 % Derivative liabilities (Note 5) P=22,017 P=22,017 P= – P= – P=22,017 Return on average assets 1.60% 1.87% 2.02% 1.59% 1.92% 2.09% P= – 63,752 63,752 63,572 – Net interest margin on average 8.43% 7.04% 6.60% 8.50% 7. 0 3 % 6.56% Bills payable* (Note 16 ) – – earning assets Total P=85,769 P= – P=85,769 P= – P=63,572 P=22,017

December 31, 2012 30. Offsetting of Financial Assets and Liabilities Effect of remaining rights of set-off (including rights to set off financial The amendments to PFRS 7, which is effective January 1, 2013, require the Group to disclose information about rights of Net amount collateral) that do not meet PAS 32 offset and related arrangements (such as collateral posting requirements) for financial instruments subject to enforceable Gross amounts presented in offsetting criteria master netting agreements or similar arrangements. The effects of these arrangements are disclosed in the succeeding Financial assets offset in statements of recognized at Fair value of tables. Gross carrying accordance with financial end of reporting amounts (before the offsetting position Financial financial Net exposure period by type offsetting) criteria [a-b] instruments collateral [c-d] Financial assets [a] [b] [c] [d] [e] Derivative liabilities (Note 5) P=97,684 P= – P=97,684 P= – P= – P=97,684 December 31, 2013 Bills payable* (Note 16) 4,571,853 – 4,571,853 – 4,571,853 – Effect of remaining rights of Total P=4,669,537 P= – P=4,669,537 P= – P=4,571,853 P=97,684 set-off (including rights to set off * Included in bills and acceptances payable in the statements of financial position Net amount financial collateral) that do not Gross amounts presented in meet PAS 32 offsetting criteria Financial assets offset in statements of The amounts disclosed in column (d) include those rights to set-off amounts that are only enforceable and exercisable in Fair value of recognized at Gross carrying accordance with financial the event of default, insolvency or bankruptcy. This includes amounts related to financial collateral both received and end of reporting Financial financial amounts (before the offsetting position Net exposure pledged, whether cash or non-cash collateral, excluding the extent of over-collateralization. period by type offsetting) criteria [a-b] instruments collateral [c-d] [a] [b] [c] [d] [e] Derivative assets (Note 5) P= 9 0 P= – P= 9 0 P= – P= – P= 9 0 Total P= 9 0 P= – P= 9 0 P= – P= – P= 9 0

156 2013 ANNUAL REPORT They’ve Got Something to Talk About 157 RBU FCDU 31. Notes to Statement of Cash Flows Other administrative expenses Write-off and losses P=2,063,697 P= – Transfers from loans and receivables to investment properties as a result of foreclosures amounted to P= 249.77 million, Other outside services 720,897 693 P= 84.40 million and P= 149.12 million in 2013, 2012 and 2011 respectively, for the Group, and P= 125.58 million, P= 72.44 Taxes and licenses 645,816 – million and P= 96.15 million in 2013, 2012 and 2011 respectively, for the Parent Company. Amounts mentioned are exclusive Salaries and allowances 615,743 2,783 of gain on asset foreclosure and dacion transactions amounting to P= 93.78 million, P= 42.41 million and P= 84.65 million in Advertising 415,390 658 2013, 2012 and 2011 respectively, for the Group, and P= 90.55 million, P= 29.85 million and P= 82.62 million in 2013, 2012 Computer cost 254,286 853 and 2011, respectively, for the Parent Company. Communication, light and water 250,449 511 Security services 180,168 1,394 In 2013, the Parent Company applied deposits for future stock subscription amounting to P= 700.00 million and P= 120.00 Janitorial and messengerial services 174,651 926 million as payments for the acquisitions of 441,000,000 common shares of GBI and 46,000,000 common shares of Transpor tation and travel 163,172 529 EWRB, respectively. Asset Acquisition 121,224 – Office supplies 69,256 351 In 2012, the Parent Company assigned to GBI bills payable amounting to P= 700.00 million as deposits for subscription of Management and consultancy fee 52,595 143 46,000,000 common shares of GBI. Also in 2012, the preferred shareholders converted a total of 300 million preferred Representation and entertainment 41,804 204 shares amounting to P= 3.00 billion to 300 million common shares. Repairs and maintenance 30,078 152 NOLCO – 30,040 In 2011, the Parent Company participated in a debt exchange program for certain investments in government securities Insurance 28,496 108 classified as financial assets at FVTPL and at amortized cost. The carrying amount of the financial assets at FVTPL Rental 28,371 29 surrendered amounted to P= 1.26 billion, and the carrying amount of the investment securities at amortized cost surrendered Commissions 15,733 – amounted to P= 3.27 billion. The fair value of the debt securities received amounted to P= 4.47 billion. Miscellaneous 75,425 1,539 5,947,251 40,913 Net Taxable Income P=487,689 P= – 32. Events Subsequent to Reporting Period Supplementary Information under RR No. 15-2010 Redemption of Lower Tier 2 Unsecured Subordinated Notes due 2019 (the 2019 Notes) On November 25, 2010, the BIR issued RR No. 15-2010, requiring the inclusion of information on various taxes paid and On January 25, 2014, the Parent Company exercised its call option on the P= 1.25 billion 2019 Notes due on January 26, 2019 accrued during the taxable year in the notes to the financial statements. and with optional redemption date of January 25, 2014. The Parent Company reported and/or paid the following types of taxes for the year ended December 31, 2013: The redemption was approved by the Parent Company’s BOD on August 29, 2013 and by the BSP on November 7, 2013. The call option amount was the sum of the face value of the Notes, plus accrued interest amounting to P= 53.85 million, Gross Receipts Tax (GRT) covering the 11th interest period from July 25, 2013 to January 25, 2014 at the interest rate of 8.625%, as of but excluding The Parent Company is subject to GRT on its gross income from Philippine sources. GRT is imposed on interest, the call option date. commissions and discounts from lending activities at 5.00% or 1.00%, depending on the remaining maturities of instruments from which such receipts are derived, and at 7.00% on non-lending fees and commissions, trading and foreign Long-term Negotiable Certificates of Deposits due 2019 (LTNCD Series 2) exchange gains and other items constituting gross income. In February 2014, the Parent Company issued the fourth tranche of its 3.25% fixed coupon rate unsecured LTNCD maturing on June 9, 2019 amounting to P= 0.83 billion. The discount, net of debt issue costs related to the issuance of the LTNCD Details of the Parent Company’s income and GRT accounts in 2013 are as follows: Series 2, amounted to P= 34.77 million. Gross Receipts Gross Receipts Tax 33. Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 Income derived from lending activities 9,834,442 458,968 Other income 2,234,903 156,443 Supplementary Information under RR No. 19-2011 On December 9, 2011, the Bureau of Internal Revenue issued RR No. 19-2011 which prescribes the new annual income tax 12,069,345 615,411 forms that will be used for filing effective taxable year 2011 and requires disclosure of taxable income, cost of service and other deductions in the notes to the financial statements. Exclusive of the above GRT schedule, the Parent Company charged GRT to its clients amounting to P=13.48 million in December 31, 2013. The Parent Company reported the following gross receipts and expenses in its annual income tax return under Regular/ Normal rate for the year ended December 31, 2013: Other Taxes and Licenses For the year ended December 31, 2013, other taxes and licenses included in ‘Taxes and licenses’ account of the Parent RBU FCDU Company consist of: Gross receipts Interest income P=8,568,982 P= – Other income 1,926,414 57,623 Documentary stamps taxes P=141,002 10,495,396 57,623 Local taxes 19,061 Cost of Services Fringe benefit taxes 12,624 Interest expense 1,013,291 – Others 1,400 Compensation 1,846,177 5,145 P=174,087 Other direct expenses 1,200,988 11,565 4,060,456 16,710 (Forward) 158 2013 ANNUAL REPORT They’ve Got Something to Talk About 159 Withholding Taxes Shareholder Information 'HWDLOVRIZLWKKROGLQJWD[HVUHPLWWHGDQGEDODQFHVDVRI'HFHPE HUDUHDVIROORZV

Total For shareholder services and assistance, Remittances Balance please write or call: :LWKKROGLQJWD[HVRQFRPSHQVDWLRQDQGEHQHìWV P=381,654 P=32,780 ([SDQGHGZLWKKROGLQJWD[HV 105,522 15,432 Stock Transfer Service, Inc. Final withholding taxes 146,344 9,439 34th Floor, Unit D, Ruì no Paciì c Tower P= 633,520 P=57,651 6784 Ayala Avenue, Makati City Metro Manila, Philippines Tel: (632) 403-2410 / 403-2412 $VRI'HFHPEHUWKH3DUHQW&RPSDQ\KDVQRWD[DVVHVVPHQWVZKLFKDUHFRYHUHGE\D)LQDO$VVHVVPHQW1RWLFH Fax: (632) 403-2414 (FAN) issued by the BIR.

Ofì ce of the Corporate Secretary East West Banking Corporation EastWest Corporate Center 5th Floor, The Beaufort 5th Avenue corner 23rd Street Bonifacio Global City, Taguig 1634 Metro Manila, Philippines Tel: (632) 575-3871 / 575-3805 Fax: (632) 816-0619 / 818-4147

For investor-related inquiries, please write or call:

Investor Relations Ofì ce East West Banking Corporation EastWest Corporate Center 5th Floor, The Beaufort 5th Avenue corner 23rd Street Bonifacio Global City, Taguig 1634 Metro Manila, Philippines Tel: (632) 575-3091 / 575-3888 loc. 3586 Email: [email protected]

This 2013 annual report contains forward-looking statements about future events and expectations. These forward-looking statements include words or phrases such as the Bank or its management or other words or phrases of similar import.

Similarly, statements that describe the Bank’s objectives, plans or goals are also forward-looking statements. All such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement.

Such forward-looking statements are made based on management’s current expectations or beliefs, as well as assumptions made by, and information currently available to, management. These statements speak only as at the date of the report and nothing contained in this report is or should be relied upon as a promise or representation as to the future.

This report does not constitute a prospectus or other offering memorandum in whole or in part nor does it constitute an offer to sell or the solicitation of an offer to buy any securities of the Bank. There shall be no sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to any qualiì cation under the securities laws of such state or jurisdiction.

This report has not been and will not be reviewed or approved by any statutory or regulatory authority or any stock exchange in the Philippines or elsewhere. Recipients of this report should undertake their own assessment with regard to investment in the Bank and they should obtain independent advice on any such investment’s suitability, inherent risks and merits and any tax, legal and accounting implications which it may have for them.

160 2013 ANNUAL REPORT East West Banking Corporation EastWest Corporate Center The Beaufort, 5th Avenue corner 23rd Street Bonifacio Global City, Taguig 1634 Metro Manila, Philippines